What Is LTC Insurance?

According to the U.S. Department of Health and Human Services, as of 2009, the average cost of a semiprivate room in a nursing home is $198 per day. To help offset those and other costs associated with your care should you need it, you can purchase long-term care insurance. Understanding the basics of long-term care insurance is an important first step in deciding if you should purchase it.

Policy Benefits

• The two basic types of benefits available with most long-term care insurance policies are home health care coverage and facility care coverage. If an insured wants to stay in his home or does not required 24-hour monitoring, the home health care portion of the policy provides coverage to have someone come to the house to provide assistance. For an insured who requires nursing home-type care, the facility care coverage portion of the policy provides payment to the facility for the insured's care.

Qualifying for Benefits

• To qualify for benefits under most long-term care policies, an insured must be unable to perform at least two "activities of daily living," as defined by the insurance policy, without assistance, or must have a cognitive impairment. The activities of daily living are: eating, bathing, dressing, toileting, transferring (moving in and out of bed) and maintaining continence. When applying for benefits, you will usually have to provide medical documentation to support your inability to perform the activities of daily living.

Exclusions and Limits

• Most long-term care policies contain preexisting condition exclusions. If the insured did not purchase the insurance until receiving a diagnosis of a condition that would eventually require long-term care benefits, the insurance company can deny the claim. Some policies exclude coverage for conditions that are self-inflicted, such as in a failed suicide attempt. When benefits are available, they are usually subject to a daily and/or lifetime benefit maximum. Daily benefit maximums on long-term care policies typically run from $50 to $500 per day. Any costs exceeding that amount are the responsibility of the insured. Lifetime benefit maximums usually range from $100,000 to $300,000, although some of the more expensive policies do not have a maximum benefit. Once the insurance company pays the lifetime maximum, it owes no further benefit payments.

Purchasing Consideration

• There are several considerations you should take into account when deciding whether or not to purchase long-term care insurance. If you have a low income and very few assets, Medicaid would provide payment for long-term care if the need arises. Conversely, if you have many assets that you want to leave to your heirs, buying long-term care insurance will help protect the value of your estate. If you buy a policy, look for one that has a defined schedule of what your premiums will be as you age. Most insurance companies increase the annual premium as you age, so you want to ensure that you can continue to afford the policy as you get older.