If your parent purchased a long-term care insurance policy years ago, there is a reasonable chance you do not know exactly what it covers, what to do with it, or how to start a claim. You are not unusual. Long-term care insurance is one of the most underused and misunderstood products in the elder care system. Policies sit in filing cabinets while families pay out of pocket for care that the policy would have covered. Other policies are surrendered for cash value when a claim would have paid many times more.
This guide is for families with a policy in hand who need to understand how it works, how to file a claim, and how to combine it with the other funding sources for residential care.
What long-term care insurance is, in plain language
Long-term care insurance is a private insurance product that pays a daily or monthly benefit toward the cost of long-term care services when the insured can no longer perform a defined set of daily activities without help, or when they have a cognitive impairment. Unlike health insurance, it does not pay for medical care. Unlike Medicare, it does not have age restrictions on benefits. Unlike Medicaid, it has no income or asset test. The insured pays premiums for years (sometimes decades), and when they need long-term care, the policy pays out.
The product was popular from the 1980s through the early 2000s. After many insurers underestimated how often and how long policyholders would actually need care, premiums rose dramatically and the market shrank. Today, the policies in force are mostly held by older adults who bought them decades ago and have been paying premiums ever since. Newer products are mostly hybrid life insurance and annuity products with long-term care riders. Both are real coverage; the rules are different from old-style policies.
The National Association of Insurance Commissioners maintains consumer guidance on LTCi and how to evaluate a policy.
What the policy covers (and the limits)
A typical traditional long-term care insurance policy has the following structure:
Benefit triggers. The policy starts paying when the insured cannot perform a specified number of activities of daily living without help (typically two of six: bathing, dressing, toileting, transferring, eating, and continence) or has a “severe cognitive impairment” (usually meaning a dementia diagnosis with documented care needs). The federal definition for tax-qualified policies is set in the Health Insurance Portability and Accountability Act, and most policies follow it.
Covered settings. Most policies issued in the last twenty years cover:
- Nursing home care
- Assisted living and residential care (including small homes, RCFEs, adult family homes)
- Home health care
- Adult day care
- Hospice care
- Some respite care for family caregivers
Older policies (issued before about 2000) often cover only nursing home care and may exclude residential care entirely. Read the policy schedule or the certificate of coverage to confirm.
Daily or monthly benefit. The policy pays a fixed dollar amount per day or per month, regardless of the actual cost of care. A common older policy might pay $150 per day ($4,500 per month). A newer policy might pay $200 to $300 per day. Some policies have an inflation rider that increases the benefit over time; these are far more valuable than fixed-benefit policies.
Benefit period. The total length of time the policy will pay benefits, typically two, three, four, or five years. Some older policies have lifetime benefit periods. The benefit period is measured in days of paid benefits, not calendar days, so a three-year benefit can stretch longer if the insured uses less than the maximum daily amount.
Elimination period. The number of days the insured must pay for care out of pocket before the benefit begins, typically 30, 60, 90, or 100 days. The longer the elimination period, the lower the premium when the policy was purchased.
Premium structure. The insured pays a fixed annual premium for as long as the policy is in force. Most policies have a “waiver of premium” provision that suspends premium payments once the insured begins receiving benefits.
How to start a claim
The claims process is the part where most families get tripped up. The steps:
-
Find the policy. This is sometimes the hardest step. Look in filing cabinets, safe deposit boxes, and email archives for any insurance correspondence. If the parent cannot remember whether they have a policy, check their tax returns for the last several years for a deduction for long-term care insurance premiums. If you find a premium payment but no policy, contact the insurer with the parent’s name and date of birth.
-
Read the policy. Look for the daily or monthly benefit, the benefit period, the elimination period, the covered settings, and the benefit triggers. If the policy is unclear, call the insurer’s customer service line and ask them to walk you through it.
-
Call the claims line. Every insurer has a dedicated claims line for long-term care benefits. Tell them you want to start a claim. They will mail or email a claim packet.
-
Complete the claim packet. The packet typically includes a claim form (signed by the insured or their power of attorney), a physician statement form (signed by the insured’s physician documenting the need for care), and an authorization for the insurer to obtain medical records.
-
Document the care need. The insurer will require documentation that the insured needs help with at least two activities of daily living or has a cognitive impairment. The physician statement is the primary documentation. The home you are considering can usually provide a separate care plan that supports the claim. For dementia claims, the Alzheimer’s Association recommends keeping documentation of the diagnosis, the cognitive testing results, and the care plan.
-
Coordinate with the home. Once the claim is approved, the insurer will pay the daily or monthly benefit either directly to the home or as reimbursement to the family. Most homes can accept payment in either format. Coordinate with the home’s billing office to set up the arrangement.
-
Track the elimination period. During the elimination period, the family pays for care out of pocket. Keep careful records, because the insurer will verify that the elimination period was satisfied before benefits begin.
The claim approval process typically takes 30 to 90 days. Once approved, benefits are paid until the insured no longer meets the benefit triggers, the benefit period is exhausted, or the policy lapses.
Common mistakes
-
Letting the policy lapse during the elimination period. If the insured stops paying premiums during the wait, the policy can be canceled. The waiver of premium provision usually kicks in only after benefits begin. Pay the premium until the insurer confirms it has been waived.
-
Not knowing the daily benefit cap. Many older policies have caps that are no longer high enough to cover the full cost of a small care home. Knowing the cap helps you plan how to bridge the gap with other sources. Our seven ways to pay guide covers the supplements families typically combine with LTCi.
-
Surrendering the policy for cash value when a claim would pay more. The cash surrender value of a long-term care policy is almost always far less than the benefits it would pay over time. Before surrendering, run the math: if the insured needed care for two or three years, what would the policy pay? In most cases, the answer is many times the cash value.
-
Assuming the policy is dead because no premium has been paid in years. Some policies lapse silently. Others enter a “non-forfeiture” status that preserves a smaller benefit. Call the insurer to find out the actual status before assuming the policy is gone.
-
Trying to start the claim without help. The claim packet is dense and the documentation requirements are specific. Most homes have admissions staff who have done dozens of LTCi claims and can help you assemble the paperwork. Ask for that help; do not try to do it alone if you can avoid it.
-
Not coordinating with VA Aid and Attendance or Medicaid. Long-term care insurance is generally additive with VA Aid and Attendance and can be combined with Medicaid in some situations. Talk to an elder law attorney if you are stacking sources.
The hybrid policies (life insurance and annuity with LTC riders)
The traditional long-term care insurance market has shrunk dramatically, but two newer products provide similar coverage with different structures.
Life insurance with a long-term care rider. A permanent life insurance policy that allows the policyholder to access part of the death benefit while alive to pay for long-term care, with the remaining death benefit paid to beneficiaries when the insured dies. These products solve the “use it or lose it” problem of traditional LTCi by guaranteeing some payout regardless. They are generally underwritten more leniently than traditional LTCi.
Annuity with a long-term care rider. A deferred annuity that allows withdrawal of the principal (and sometimes additional amounts) for long-term care expenses. Less common than life insurance hybrids, but available.
These hybrid products are usually sold by financial advisors and are more expensive than traditional LTCi was at the same age. They can still make sense for families who do not have a traditional policy and who want some long-term care protection. Talk to a financial planner who is fee-only (not commission-based) before purchasing one.
How LTCi fits with the other funding sources
For most families, long-term care insurance is one piece of a multi-source funding plan. A typical combination might be:
- Social Security: $1,800/month (covers room and board portion)
- LTCi benefit: $5,000/month (covers most of the care services portion)
- Family contribution: $500/month (covers the gap)
- Total: $7,300/month, comfortably covering a typical six-bed home
Compare this to a family without LTCi, which would need to fund the entire $7,300 from Social Security plus savings or other sources. Over a three-year placement, the LTCi benefit is worth roughly $180,000 in out-of-pocket savings.
For the broader picture of how to combine funding sources, see our seven ways to pay guide. For the underlying cost, see our cost guide.
The next step
If you have a policy and have not used it yet, the most useful action this week is to call the insurer’s claims line and request the claim packet, even before the parent has actually moved into a home. Reading the packet in advance helps you understand the documentation requirements and start gathering what you will need. If you do not know whether your parent has a policy, look through their financial records this weekend. The policy is more common than families assume.
For more on the funding sources that combine with LTCi, see our seven ways to pay guide and our Medicaid guide.
Sources and further reading: National Association of Insurance Commissioners — Long-Term Care Insurance; IRS Publication 502 — Medical and Dental Expenses; Administration for Community Living — LongTermCare.gov; Alzheimer’s Association; Eldercare Locator.