Long-Term Care: The Policy You Hope You Never Use but Really Need to Understand
If you’ve purchased a long-term care insurance policy, or you’re thinking about it, you are already ahead of the curve that many hesitate to face. Most people avoid this topic entirely until a health crisis forces the conversation. And it can cripple your retirement plans if you don’t have it covered.
But here’s the thing: buying the policy is only half the job. Understanding what’s actually in it is the other half, and it’s the part that many people skip.
“Long-term care insurance can feel complex when you don’t understand how it functions,” says Joseph Aspelund, Branch Manager of the White Plains Branch at David Lerner Associates. “The fine print isn’t just legal boilerplate. It determines how and under what conditions you’ll receive the benefits you’re counting on when you need them most”.
Here’s what you need to know:
What Long-Term Care Insurance Actually Covers
Long-term care insurance is designed to cover services that help you with daily living activities, such as bathing, dressing, eating, and mobility, when you can no longer manage them independently due to aging, illness, or cognitive decline, like dementia or Alzheimer’s. These services can be provided at home, in an assisted living facility, or in a nursing home.
What it does not cover is medical treatment. That’s what Medicare and additional health insurance plans are for. Long-term care can fill the gap for the custodial care that Medicare largely doesn’t cover, and that gap is expensive. The national median cost of a private nursing home room is now over $120,000 per year, and home health aide services can run more than $75,000 annually in many markets.
Do You Have to Pay Premiums Forever?
This is one of the most misunderstood aspects of long-term care insurance. The answer depends on the policy type you have.
Traditional long-term care policies
Require you to pay premiums for as long as you want the coverage to remain active. There is no defined endpoint. You may pay for 20, 30, or even 40 years before ever filing a claim. If you stop paying, the policy lapses, and you lose everything you’ve put in (unless you have a nonforfeiture benefit, more on that below). Premiums are also not locked in forever; insurers can and do request rate increases, which have historically been significant for many policyholders.
Limited-pay policies
Allow you to pay premiums over a defined period. This is commonly 10 years, 20 years, or until age 65. After that, your policy is paid in full, and coverage continues for life with no further premiums. These policies have higher annual premiums during the pay period, but they eliminate the risk of ongoing rate increases and the burden of paying in retirement on a fixed income.
Hybrid or combination policies
Link long-term care benefits to a life insurance policy or annuity. You typically make a lump-sum payment or pay over a set term, and the policy provides long-term care benefits if needed, or passes a death benefit to heirs if not. These can be popular because the “use it or lose it” concern disappears.
The Fine Print That Can Make or Break Your Claim
The elimination period is the waiting period before benefits kick in — typically 30, 60, or 90 days. During that window, you’re paying out of pocket. A 90-day elimination period is common and can mean $15,000–$25,000 in personal costs before your policy pays a dime. Make sure you have liquid savings to bridge that gap.
The ‘Benefit Trigger’
The “benefit trigger” defines when you qualify for benefits. Most policies require that you be unable to perform two of six activities of daily living, or that you have a cognitive impairment. Read your benefit carefully. The specific language determines everything about when your claim will be approved.
The Inflation Protection Rider
The inflation protection rider can be one of the most important decisions you’ll make. This feature can be added to LTC insurance to keep pace with the rising cost of care. Benefits that seem generous today may be inadequate in 20 years without a cost-of-living adjustment. Look for compound inflation protection of 3–5% annually.
The Nonforfeiture Benefit
The nonforfeiture benefit protects you if you ever stop paying premiums; rather than losing everything, you retain a reduced paid-up benefit. It adds to the policy’s cost, but it’s worth serious consideration.
What You Should Do Right Now
Pull out your policy and read it. Look specifically at the elimination period, benefit triggers, daily or monthly benefit limits, inflation provisions, and whether your premiums can increase. If you don’t have a policy yet, your 40s and early 50s are the sweet spot for purchasing a long-term care policy. Premiums are meaningfully lower than they’ll be in your 60s, and you’re more likely to qualify medically.
An Investment Counselor can be used for guidance on how to protect your retirement investment with a long-term care policy. Consider speaking to one of our Investment Counselors at David Lerner Associates. We can help you evaluate your current and future needs for long-term care and find investment strategies that align with your goals.
Long-term care is one of the biggest financial wildcards in retirement planning. The people who navigate it best aren’t always the ones who bought the most expensive policies. They’re the ones who understood what they bought and how it applies to their financial picture.
Material contained in this article is provided for information purposes only. It is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities. These materials are provided for general information and educational purposes, based on publicly available information from sources believed to be reliable. We cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.