How to Design a Long-Term Care Insurance Policy


Designing a long-term care insurance policy takes some careful consideration and thought. There is no "plan fits all", long-term care insurance benefits should be based on each individual's needs and goals. Below are the steps in designing a traditional long-term care insurance policy.


Choose Daily/Monthly Benefit Amount
First you will need choose how much per day/month you want your LTC policy to pay benefits regardless if the care is in your home, assisted living facility or nursing home. If you know where you will live when you retire you should factor in the cost of care in that area - see the Genworth Cost of Care Study. Daily benefits usually range from $50-$400 a day.


Choose your Benefit Period
Next you will have to select the amount of time you want your policy to pay. This can be one of the most difficult benefits to decide upon. To help make this decision, here are some considerations to think about:

  • Does longevity or a chronic illness run in your family, if so you might want to consider a lifetime/unlimited benefit period.
  • Do you have a spouse, if so you might want to consider a shared benefit.


Typical benefit periods are 2, 3, 4, 5, 7, 10, or unlimited.


Calculate your Total Benefit Account (Pool of Money)
To determine your total pool of money you will have to multiply the daily/monthly benefit by your benefit period. For example if you have a $200 daily benefit and a 4 year benefit period, you will have a benefit pool of $292,000 ($200 x 1460 days). Or an example if you have a $6,000 monthly benefit and a 4 year benefit period, you will have a benefit pool of $288,000 ($6,000 x 48 months).


Choose an Elimination Period
This is deductible of a long-term care insurance policy. You are going to have to decide the amount of time you will want to pay for your care out of your pocket until the insurance company will start to pay benefits. The longer the elimination period the lower your premiums. Typical elimination periods are 30, 60, 90, 180 and 365 days.


Choose Inflation Protection
Inflation protection provides increases in daily/monthly benefit levels to help pay for the expected increases in the cost of long-term care services. The costs of long-term care services continue to be on the rise, so it is important that you add inflation protection to your LTC insurance policy, since it may be 10, 20, 30 plus years that you need to start claiming benefits. Inflation protection does come at an additional cost, here are the different types of inflation protection:


  • Compound inflation - This will provide automatic annual increases in your daily benefit as well as your benefit pool. Compound Inflation will increase your daily benefit each year by typically 3% or 5% of the previous year's amount. This should take about 15 years for your daily benefit to double.
  • Simple Inflation - This will provide automatic annual increases in your daily benefit as well as your benefit pool. Simple Inflation will increase your daily benefit each year by typically 3% or 5% of the original years amount. This should take about 20 years for your daily benefit to double.
  • CPI Inflation - This will provide adjustments to your daily benefit as well as your benefit pool based on increases from the Consumer Price Index (CPI). This type of inflation is newer to the industry.
  • Guaranteed Purchase Option (GPO)/Future Purchase Option (FPO) - This is a type of inflation protection that gives the option to increase the daily benefit, typically offered every 3 years. This is not automatic and premiums do increase if the policyholder chooses to increase the daily amount, this is based on their age at that time. With some long-term care insurance carriers, GPO will be included in your policy without any additional premium if no other inflation protection is selected.


Choose any Optional Riders
You can enhance your long-term care coverage with additional policy features. These riders do come at an additional cost. Please note: not all riders are available with all LTC insurance companies and not all riders may be listed, the following are the more common riders.


  • Waiver of Home Health Care Elimination Period - Elimination period will be waived if care is being received in your home or community based setting. This is a great rider, since typically care does start in the home. In addition, some long-term care insurance companies will count the days you received care in your home towards satisfying your elimination period for facility care.
  • Additional Cash Benefit - This typically provides additional cash benefits that can be used on long-term care expenses while receiving care in your home.
  • Return of Premium - After the policyholder has passed away, the premiums paid into the policy will be paid to the beneficiary. Typically most long-term care insurance companies that offer this rider require the policy to be in force for a certain amount of years before it would return the premiums.
  • Restoration of Benefits - If an individual is receiving care and then no longer needs care for an extended period of time (typically 180 days), the insurance company will restore your benefits to their original amount.
  • Nonforfeiture Benefit - This will return part of the premiums that you have paid if you should cancel or let your policy lapse.
  • Shared Benefit - This is a feature for couples, it enables you to maximize the value of your coverage by combining the two individual policies. This will allow you to access your partner's benefits when you have exhausted your benefits or vice versa. Also, typically when one partner dies the surviving partner's benefits will be increased by the deceased partner's remaining benefits. Learn more here.
  • Survivorship - This is a rider for couples, if one partner dies the surviving partner will not be required to pay premiums. Most long-term care insurance companies require the policies to be in force for a minimum period of 10 years before this rider would become effective.
  • Dual Waiver of Premium - This will also waive your partner's premiums even if he/she is not on claim (as well as yours).


Payment Options
The final step in designing your long-term care insurance policy, is to choose how often you want to pay your premiums. You can choose annually, semi-annually, quarterly or monthly. The more often you pay the more you are going to pay. Some long-term care insurance companies also offer Limited Payment Options where you can pay premiums for a limited amount of time such as Pay to age 65 and 10 Pay (pay up your policy in 10 years).


That's it!! You have learned the steps in building a long-term care insurance policy!! If you still need some price quotes, click here! We will provide only the top long-term care insurance carriers pricing!!