Bolster’s simple guide to long-term care insurance

Long-term care insurance is not hard to understand if you break it down into a few simple definitions.

At the highest level, long-term care insurance is an insurance policy that people buy that will pay them or their family if they become disabled and require long-term assistance with basic daily activities (like getting dressed in the morning, eating, bathing, etc.).

Long-term care insurance works just like most other insurance products you’re familiar with, except there are a few special terms that are used in the industry that can be confusing until you learn what they mean. In this guide, we’ll walk you through the different components of a long-term care plan and will explain all of the terminology you need to know.

At a high level, the most important things to know are:

  • The benefit amount: This is the amount that the policy will pay out if the policy-holder requires long-term care
  • The benefit trigger: These are the events that have to occur in order for the policy to “kick-in” and begin paying benefits
  • The elimination period: This is like the “deductible” in a health insurance policy, except it’s measured in time, not dollars. 
  • Inflation protection: This is how much the value of your policy (the benefit amount) will grow each year. 
  • The premium: This is the amount that you pay to the insurance carrier to purchase the insurance

The benefit amount

This is the most important part of a long-term care policy as it defines how much the total policy is worth. The benefit amount is determined by two numbers: the daily benefit amount and the benefit length. Multiplying the daily benefit amount by 365 and then multiplying by the benefit length will give you the total benefit amount. Let’s look at some examples:

Daily Benefit AmountBenefit LengthTotal Benefit Amount
$1004 years$146,000
$2003 years$219,000
$2502 years$182,500

The higher the benefit amount, the more expensive the insurance policy will be. Fortunately, by adjusting the daily benefit amount and the benefit length, we can find a long-term care insurance policy for almost any budget.

The benefits trigger

The benefits trigger determines when the company will begin paying out claims for long-term care costs. Fortunately, the benefits trigger for most policies have conformed to be very similar. Every policy sold today is required to have benefits triggered when the policy-holder is diagnosed with a severe cognitive impairment (like dementia or Alzheimer’s) or requires assistance with at least two activities of daily living: 

  • bathing,
  • dressing,
  • toileting,
  • eating,
  • transferring (like getting out of bed)
  • continence

It is a good idea to read this part of the policy closely and ask your policy specialist if you have any questions about what will or will not trigger benefits.

The elimination period

The elimination period is the amount of time you have to wait after disability before the insurance policy will start paying out. You can think of it like the deductible associated with your health insurance policy. Most policies sold today have a 90-day elimination period (meaning that the policy will start to pay out claims after the policy-holder has been paying claims for 90 days).

Like with a deductible, the higher the elimination period, the more affordable the premiums for the insurance policy will be.

Inflation protection

Since the costs of care each year, it’s a good idea to make sure that your policy value will grow along with those costs. The inflation protection amount determines how much the benefit amount will grow every year after the policy is initiated. Because you likely will not receive the benefits of a long-term care insurance policy for 20 or 30 years after it is purchased, it is highly recommended that you purchase a policy with inflation protection so that your benefits will grow as the costs of care continue to increase. Most people purchase either 3% or 5% inflation protection.

The premium

The premium is the easiest to understand — just like in other types of insurance, this is the amount of money you pay to the insurance company in order to purchase coverage. With long-term care insurance, you can pay annually, bi-annually, or monthly. However, there are often discounts associated with paying annually so that’s what most people do.

And that’s it! You’re now prepared to shop for long-term care insurance — if you have any questions, do not hesitate to reach out to us here at Bolster. You can email us at info@bolster.life or sign up for a long-term care planning session by clicking the button below.



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