Traditional long term care (LTC) insurance policies are built as stand alone, pure risk based insurance. These policies pay benefits when you are in a qualifying long-term care situation and you need help with Activities of Daily Living (ADLs) or have a cognitive impairment and need supervision and your expected need of care is more than 90 days. These benefits can pay for care in your home and in a facility.
When you buy a policy, think of it as you are purchasing a bucket of money that you can use over a period of time to pay for your care. The types of care typically covered include custodial (non-medical) care, skilled nursing care, and therapy (physical, occupational, speech) care. Homemaker services, care coordination, stay at home benefits, respite care, and home modifications are often included too.
Traditional (Stand-Alone) LTC Insurance Premiums
Traditional policies typically have ongoing premiums, much like your home or auto insurance that you pay monthly or annually. However, there are options to pay over 10 years or do a lump sum payment. A traditional policy can be the least expensive and most cost effective way to fund long term care.
Premium rates are not guaranteed to stay the same, but policies bought today are priced much more accurately than they were years ago, and the odds of having a rate increase are small. When you go on claim and are receiving benefits, your premium payments stop, which is called waiver of premium. If you have an accident and go on claim, then heal up from injuries and no longer need long-term care, the premiums would resume once you recover and aren’t on claim anymore, if you haven’t exhausted your benefits.
Most traditional policies pay benefits using a reimbursement method which means after you submit your monthly receipts, the insurance company will reimburse you for your care costs up to your monthly/daily benefit amount. Although if you are in a facility or using a home care agency, you can often have the insurance company directly bill them.
There isn’t any cash value or death benefit in the policy if you don’t use it, unlike a hybrid policy.
There are also potential tax deductions if you buy a traditional policy, especially if you’re a business owner. For example, if you are a C Corp, you can write 100% of the premium payments off. If you’re a sole proprietor, partner, or S Corp, there are deduction limits. Click here to learn more about buying LTC insurance through a business.
Who Should Buy a Traditional Policy?
A traditional policy is great for people who have smaller estates, good income, and good health.
Your health is super important when qualifying for a traditional policy and it can be much harder to underwrite compared to a hybrid policy. If you already need LTC or aren’t healthy enough, you won’t qualify for it. Make sure you answer health questions up front and are “prescreened” before submitting an application.
State Partnership Program
When you buy a partnership qualified traditional long-term care policy, the state will actually reward you by allowing you to protect assets from Medicaid spend down rules, providing dollar for dollar asset protection. This is only available with traditional policies, not hybrid.
The Bottom Line
Traditional long-term care insurance policies are typically the most cost effective way to get LTC coverage. Health and age are very important when applying for a traditional policy.