Definition: Coverage available on an individual or group basis to provide medical and other services to patients who need constant care in their own home or in a nursing home. *©LOMA Glossary of Insurance Terms

Why Long-Term Care Insurance?

People are living longer. If you or a family member needed long-term care services either in a nursing home or home care setting, would you be able to afford it? Health care plans typically do not cover long-term care services. Long-term care insurance provides a way to pay for rising long-term care costs without depleting your life savings.

Long-term care insurance covers a variety of services from assistance with the activities of daily living to 24-hour skilled nursing care. You could receive these services in your home, an assisted-living facility or a nursing home.

A study by the US Department of Health and Human Services indicates that people of age 65 face at least a 40% lifetime risk of entering a nursing home. About 10% will stay 5 years or longer. When selecting long - term care policy features, you will need to consider whether you would like a limited, multi - year benefit period or an unlimited benefit period. However, the longer the benefit period, the higher the premiums.

Premiums also vary depending on the number of days that you choose to pay for care before your policy begins coverage. The standard waiting periods are between 20 and 100 days, with longer waiting periods meaning lower premiums.

Tax Implications

Most long term care policies sold today are tax-qualified, which means your premiums for long term care insurance, as well as your out-of-pocket expenses for long term care, can be applied toward meeting the 7.5 percent floor for medical expense deductions contained in the federal tax code. However, there are age-based limits for the total amount of premiums paid for long term care insurance that can be applied. You should check with your tax adviser to see whether you are eligible to take this deduction.

Consumer Protection

All long-term care policies must meet consumer protection standards set by the state in which they are sold. Also, any plans that qualify for federal tax deductions must meet additional consumer protection standards set by the federal government. However, you should still review any policy you are considering to be sure that it contains the minimum standards for long term care set forth by the National Association of Insurance Commissioners:

• At least one year of nursing home or home health care coverage, including custodial care. Benefits should not be limited primarily to skilled care.

• Coverage for Alzheimer's disease should you develop it after purchasing the policy.

• An inflation-protection option.

• A guide that systematically and clearly describes your policy's benefits, limitations, and exclusions, and contains information designed to help you decide whether long term care insurance is really right for you.

• A guarantee that the policy cannot be canceled when you get older or if you suffer physical or mental deterioration.

• The right to return the policy within 30 days after you have purchased it and to receive a premium refund, also known as the free look period, which is often required by state law.

• No requirement that you: first be hospitalized in order to receive nursing home or home health care benefits; first receive skilled nursing home care before receiving custodial nursing home care; or first receive nursing home care before receiving benefits for home health care.

Tips on Buying Long-Term Care Insurance

• Check with your state's insurance department to make sure the company is licensed in your state.

• Be sure the company is reputable and ethical. A good place to start is to look for the IMSA logo. The IMSA logo can be displayed only by an insurance company that has been successfully measured against IMSA's Principles and Code of Ethical Market Conduct.

• Be sure the company is financially strong. Many independent services rate the financial strength of insurance companies, such as A.M. Best Company, Fitch Ratings, Inc., Moody's Investor Services Inc. and Standard & Poor's Insurance Rating Services.

• Ask for outlines of coverage so that you can compare features of several policies.

• When you purchase a policy, make your check payable to the insurance company and be sure to get a receipt.

• Consider having premiums for long term care insurance automatically paid from your bank account, so that you won't lose coverage if an illness or accident prevents you from paying your premium on time.

IMSA Member Companies

To locate an IMSA member insurance company, click here.