Jaipur Wealth Management：What Are the Three Types of Long-Term Care Insurance？

As Americans live longer and the cost of long-term care continues to rise, long-term care insurance can provide a vital financial safety net. But purchasing a policy is a major decision that calls for careful thought. No one-size-fits-all solution exists—there are different types of long-term care insurance designed to fit different needs.

So where do you begin? A good place to start is learning about the multiple ways you can secure long-term care coverage.

Standalone long-term care insurance is solely designed to cover a wide range of long-term care services. These include assistance with activities of daily living (ADLs): bathing, continence, dressing, eating, toileting, and transferring, as well as care received in nursing homes, assisted living facilities, or at home.

How it works: A standalone long-term care policy

This policy is made up of the following:

Benefit amount: This is the maximum amount the policy will pay per day or per month for long-term care services. Many policies offer inflation protection to ensure benefits keep pace with increasing costs.

Benefit period: This is the duration for which benefits will be paid, such as two years, five years, or even a lifetime. Longer benefit periods result in higher premiums.

Elimination (waiting) period: This is the period (e.g., 0, 30, 60, or 90 days) you must wait before benefits beginJaipur Wealth Management. During this time, you are responsible for covering the full cost of care.

With this type of long-term care insurance policy, you have the flexibility to choose the amount of coverage, the benefit period, and the elimination period to fit your needs and budget. Benefits are triggered when you can no longer perform a certain number of ADLs without help (e.g., two out of six), or you develop a cognitive impairment such as Alzheimer’s disease.

What to consider when choosing a standalone long-term care insurance policy

Standalone long-term care insurance is generally the less expensive option, since it only covers long-term care.

A standalone policy is a “use it or lose it” option. You could pay years’ worth of ongoing premiums to maintain the policy. If you do not ultimately need long-term care, the policy lapses and you receive no return on the money you invested.

The premiums and benefits for this type of long-term care insurance can be changed by the insurer over time.

You may be able to withdraw money tax-free from your Health Savings Account (HSA) to pay for your standalone policy premiums.Varanasi Stock

SCENARIO: At age 75, Catherine has a stroke and needs help bathing, dressing, and eating. After the 90-day elimination period, she starts receiving home care services at a rate of $150 per day. Her policy reimburses her for these expenses. Over time, the daily benefit amount increases due to the inflation protection.

A long-term care insurance rider is added to an existing insurance policy (typically increasing your premium). This rider piggybacks off the existing structure and benefits of the primary policy to provide additional coverage for long-term care should you one day need it. A long-term care rider combined with life insurance or an annuity contract is a type of hybrid long-term care insurance.

How it works: A long-term care insurance rider

When a rider is attached to a life insurance policy, the life insurance death benefit can be accelerated to cover long-term care costs. You can use a set portion of this benefit (e.g., up to 50%) while you are still alive, which reduces the amount that will be paid out to your beneficiaries when you die. A rider may offer various payout options, such as a lump sum or monthly payments. Long-term care riders (and other hybrid policies) use the same benefit triggers as traditional long-term care insurance.

If you end up not needing long-term care, your beneficiaries will receive the full death benefit as written in the primary life insurance policy.

What to consider when choosing a long-term care insurance rider

Unlike the "use it or lose it" nature of traditional long-term care insurance, this type of policy offers a death benefit to your beneficiaries if you die without needing long-term care.

Unlike a standalone policy with inflation protection, the benefits under a long-term care rider typically do not increase over time.

SCENARIO: Frank, age 82, has a $500,000 life insurance policy with a long-term care rider. Under the terms of his policy, he can use up to $500,000 of his death benefit to cover his long-term care expenses. If he uses $250,000, the remaining $250,000 of the death benefit will be paid to his beneficiaries.

A linked-benefit long-term care policy—another type of hybrid insurance—combines the features of traditional long-term care insurance with permanent life insurance or an annuity.

How it works: A linked-benefit long-term care policy

A linked-benefit policy primarily covers long-term care services just as a traditional policy would. If you don’t use all the long-term care benefits, the remaining death benefit is paid to your beneficiaries when you die. Many policies guarantee a small death benefit even if long-term care benefits are fully depleted (e.g., 10% of the full death benefit).

You can choose to pay a fixed, single premium up front for your linked-benefit policy or a series of installments over a set number of years. Once all payments are made, you owe no further premiums.

What to consider when choosing a linked-benefit long-term care policy

Like a life insurance policy with a long-term care rider, a linked-benefit policy offers the dual protection of long-term care coverage and a death benefit for your beneficiaries.

You have the option to "exit" the policy if you change your mind. After the surrender charge period (e.g., 10 years), you can cancel your policy and get back some or all of the premium you❿ paid. In some cases, you may get even more than what you paid in.

SCENARIO: At age 56, Gabby bought a linked-benefit policy, and plans to pay $10,000 per year over the next 10 years. This provides her with a $150,000 death benefit, and up to $450,000 in long-term care benefits that would be paid out over six years. If Gabby never needs long-term care, her beneficiaries would receive the full $150,000 death benefit when she dies.

Hindsight is 20/20. According to the Nationwide Retirement Institute® Long-Term Care Survey, 29% of older adults (age 59+) would tell their younger selves to not assume they’ll never need long-term care.1

The fact is most of us will require some form of extended care after age 65 to stay healthy, active, and engaged. Long-term care insurance provides added financial protection by helping to cover the high costs associated with care services. It can round out a holistic retirement planning strategy that helps to keep your savings and other assets intact.

You’ll want to put coverage in place well before you have an immediate need for this type of care. The longer you wait, the more expensive it will be.

“Consider discussing your expected long-term health care needs with your doctor,” said Holly Snyder, president of Nationwide’s Life Insurance business.  “If you decide insurance is right for you, an experienced financial professional can then help you navigate the different types of long-term care policies and make an informed coverage decision.”

Explore this long-term care insurance guide from Nationwide to learn more.

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