Traditional LTC Insurance

This is what most people think about when the conversation about long-term care insurance comes up. It is actually still a viable option for many people.
Traditional LTC is in insurance policy that is designed to pay a benefit when long-term care services are needed. These policies are triggered when the insured cannot perform two or more of the Activities of Daily Living (ADL's) without assistance. These ADL's include: bathing, eating, dressing, transferring, toileting and incontinence. In addition, benefits can also be triggered by a cognitive impairment in which case, no other ADL limitations are necessary.
These policies have many moving parts. Some of these include the benefit amount (daily or monthly), the Benefit Period (how long it lasts), the Elimination Period (time before benefits start), location (Nursing home, Assisted living, Home care), Respite Care, Shared benefits, Inflation Protection, etc. All of these have a potential benefit to an individual and will affect the cost of the plan.

Since the benefits are consistent from the inception of the coverage, the insurance company is taking the immediate risk should you go on claim early in the policy. Their mechanism to control this risk is in the stringency of their medical underwriting. These plans can be hard to qualify for, making it imperative to look at this type of coverage earlier in life before any potential health issues arise. Also, the premiums increase with age making waiting on getting this coverage a problematic situation.

Some benefits of these types of policies include: Tax Deductibility based on the age of the individual, The ability to use HSA savings to pay for this coverage and the ability to benefit from the state partnership program.

The state partnership programs are a unique way that the government incentivizes people to take care of this responsibility. Simply put, the amount of coverage that is insured by the LTC plan (Monthly benefit X duration) can be excluded from assets at the time that the individual exhausts their benefits and has to "spend down" their assets to qualify for Medicaid. For example, if an individual had a $5,000 per month benefit for 60 months, their total benefit would be $300,000. If they were institutionalized beyond that 60th month, they would tap into their assets to pay for care. The partnership program allow the $300,000 to be excluded from their assets in the spend down process, leaving that amount to go towards their beneficiaries.

While there are goods and bads to each type of coverage, the traditional long-term care insurance policy does not require a large up-front cost, and allows for the benefits of tax deductibility and the Partnership program. The limitations to this type of plan are the strenuous underwriting and potentially high monthly cost, especially at older ages. another negative to this type of plan is that it is typically a "Use it or Lose it" scenario. While some policies may have a return of premium option, the additional cost for these types of benefits are rarely worth it.