Intro
Some policies like to play games in how they calculate your benefit. While many benefits look similar across policies, a few can make a big difference:
Looking ahead to how you’ll receive your benefits is smart planning. Remember to use the letters LTC as a guide to achieve these goals: Learn about options, Talk with family, and Create a plan.
We’re here to explain your benefit options in plain English, so you can make confident, informed choices when selecting a policy.
Post jargon
ADLs (activities of daily living): basic tasks like bathing, dressing, eating, transferring, toileting, and continence
benefit: the amount LTCi pays for covered care expenses
exclusion: an insurance rule that denies benefits for specific risks
LTC: long-term care
LTCi: long-term care insurance
➡️ Explore all the LTC jargon
Comparisons
When learning about these benefits, consider two key questions:
- How much is the benefit?
- How easy is it to get the benefit?
Now, imagine choosing between playing the lottery or bingo. Which would you pick?
- Lottery - How much? 👍🏼 How easy? 👎🏼
- Bingo - How much? 👎🏼 How easy? 👍🏼
The takeaway: Some LTCi decisions come with trade-offs. This simple framework—"How much?" vs. "How easy?"—can help you find the right benefits and policy for your needs.
Reimbursement
How much? 👎🏼 How easy? 👎🏼
How reimbursement works
When you need long-term care, you'll get paid from your LTC insurance policy. Many traditional and older hybrid policies offer reimbursement. You submit receipts to your insurer (e.g., a care provider in your home) and you're reimbursed for the costs.
Lower payments
Here's a problem. Let’s say your maximum monthly benefit is $5k, but your LTC costs are $2k. You only get reimbursed for the $2k. You don't get the full $5k.
Ok, this is worth repeating. Pay attention.
| If your max benefit is | And your cost is | Then you get |
|---|---|---|
| $5k | $2k | $2k |
This might seem fair, but cash indemnity policies (which we’ll cover in a minute) pay you the full $5k.
More exclusions
Check your reimbursement policy's exclusions (i.e., reasons you won’t get paid). Some of these are pretty important, so pay attention again.
- Excluded: Unlicensed caregivers
Many reimbursement policies won’t cover care provided by your adult child, spouse, or other non-licensed caregivers. This limitation can seriously reduce your flexibility.
- Excluded: New types of care
Many reimbursement policies won’t pay for new types of care (👋 hello, AI?). They stick to eligible facilities or current standards of care. Who knows what the world will look like in 20 years? Unfortunately, your policy might not keep up.
- Excluded: If Medicare pays
Many reimbursement policies won’t pay if another source, like Medicare, covers your care. While Medicare doesn’t currently cover long-term care (LTC), what if it starts covering parts of it in the future? It’s unlikely—but you’re buying insurance to reduce risk, so don’t take chances.
Cash indemnity
How much? 👍🏼 How easy? 👍🏼
When you need long-term care, you'll get paid from your LTC insurance policy. Policies with cash indemnity are a big improvement compared to reimbursement plans.
But first, let’s talk about the name "cash indemnity." The insurance industry desperately needs a naming consultant.
Quick digression: My daughter showed me her pre-workout supplement called "Gorilla Mode: Tiger's Blood."
Now that's a catchy name. If the insurance industry sold this product, they’d call it "Betaine and Hydroprime Glycerol Powder." But whatever.
How cash indemnity works
Cash indemnity might sound boring, but it offers more money and flexibility with fewer hassles. Modern hybrid policies use this payment method, which has several perks:
- No need to submit receipts (less hassle).
- You receive the full, maximum benefit each month, regardless of the actual cost of care.
- You can spend the money on any type of care—no restrictions or approvals needed with fewer exclusions.
These improvements are a game changer. Let's dig into each one.
No receipts
Cash indemnity allows you to skip the hassle of submitting receipts, giving you more flexibility in how you use your benefits. However, many larger care providers, such as home care agencies, often handle reimbursements directly with your LTC insurance, ensuring they are paid without extra effort on your part. This is a good advantage.
Higher payments
This one is a great advantage.
If your monthly benefit is $5k and your care costs $2k, you still receive the full $5k (unlike reimbursement policies, which only pay $2k).
| If your max benefit is | And your cost is | Then you get |
|---|---|---|
| $5k | $2k | $5k |
With cash indemnity, you pocket an extra $3k ($5k minus $2k) for anything you want—like a trip to see your grandma.
Fewer exclusions
This is also a great advantage. Since cash indemnity policies don’t reimburse for specific services, there are far fewer exclusions. You usually can't receive benefits if your need for care is the result of:
- intentional self-harm
- felony involvement
Put another way, if and when we receive care from AI robots, you'll still receive benefits with cash indemnity policies.
Other considerations
Cash indemnity policies offer more flexibility than reimbursement policies. However, they typically cost a little more, and exact comparisons can be tricky due to policy differences. Fill out this form to receive some concrete examples.
Inflation protection
How much? 👍🏼 How easy? 👍🏼
Long-term care costs have risen 3-4% per year over the last two decades. You’ll want your policy to keep up with the rising cost of care.
Most LTCi policies offer two main types of inflation protection:
- Simple inflation protection: Your benefit increases each year by a fixed percentage based on the original amount.
- Compound inflation protection: Your benefit increases each year by a percentage of the previous year’s amount, creating a snowball effect—essentially interest on interest.
As expected, compound inflation protection grows your benefits faster over time.
Bigger benefits come at a higher cost in premiums, but 3% compound inflation protection is the most common choice.
Some policies offer other types of inflation protection:
- 3% compound for 20 years - After 20 years, your benefits stop increasing. This can be a good choice if you're older and don’t expect to need coverage beyond 20 years.
- Compound on an index - Your benefits grow based on the actual rate of LTC inflation or a stock market index.
Death benefit
The term "death benefit" sounds weird and insensitive. You pass away and your someone gets paid?
But it’s practical. During a difficult time for your family, your family or beneficiary receive a tax-free payout when you pass away.
- For example, $100k in premiums could leave $150k for them.
- If you use some benefits while alive, that amount is subtracted from the payout.
Death benefits with traditional policies
How much? 👎🏼 How easy? 👎🏼
Most traditional policies don't include death benefits. However, some offer a "return of premium" rider as an optional add-on, which functions similarly.
Death benefits with hybrid policies
How much? 👍🏼 How easy? 👍🏼
Death benefits are standard with most hybrid policies. Even if you use your LTC benefits, hybrids typically guarantee a minimum death benefit—often around $10k—to cover final expenses like burial costs.
Benefit period
The benefit period is the number of years your LTCi policy will cover you once you need care—usually ranging from 2 to 8 years.
How benefit periods work
Benefit periods are calculated differently based on your policy type:
- Traditional policies: Your benefit period depends on how much of your LTC coverage you use each month.
- For example, if you have a 4-year benefit period with $6,000/month coverage but only need $3,000/month, the unused $3,000 is carried forward each month.
- This effectively extends your benefit period, potentially doubling it to 8 years (assuming you don't pass away first).
- Hybrid policies: Your benefit period is fixed since most hybrids pay you the full benefit in cash.
Optimal benefit period length
More years sound better, right?
Think of the benefit period as the number of years your LTC policy holds onto your money before paying it out.
For example, if you select an 8-year benefit period, you would need 8 full years of care to maximize your benefits. If you pass away earlier, any unused benefits are lost.
When comparing policies, remember: you pay for LTC costs in money, not years. Choosing your benefit period is often a tradeoff:
- More years - How much? 👍🏼 How easy? 👎🏼
- Less years - How much? 👎🏼 How easy? 👍🏼
If you purchase LTCi through Long Term What?, we’ll help you pick the benefit period that works best for your needs.
Other considerations
- Women, on average, need more LTC than men (3.7 years vs. 2.2 years). This difference may influence your decision.
- Some policies offer unlimited length benefits, but these come at a higher cost. Below, we review policies that include unlimited length options.
Jesse Vickey
Jesse Vickey
Wrap up
Buying long-term care insurance is a big investment in your future. You can’t predict what will happen tomorrow, let alone decades from now. That’s why understanding your benefits now will mean you're happy once you get paid.
