Types of Long-Term Care Insurance Policies


Long-term care insurance (LTCI) policies offered by insurance companies can be purchased directly from the companies, through an insurance agent, your employer or an association.

If you work for the federal government (including the military), you may be able to obtain coverage under the Federal Long Term Care Insurance Program. Active and retired federal employees, their spouses and adult children are eligible to apply for coverage.

Tip: All 50 states have the option of enacting long-term care partnership programs that combine private LTCI with Medicaid coverage. Partnership programs enable individuals to pay for long-term care and preserve some of their wealth. Although state programs vary, individuals who purchase partnership-approved LTCI policies, then exhaust policy benefits on long-term care services, will generally qualify for Medicaid without having to first spend down all or part of their assets (assuming they meet income and other eligibility requirements). Although partnership programs are currently available in just a few states, it's likely that many more states will offer them in the future.

Individual policies

Most LTCI policies are sold to individuals through an insurance agent, via mail solicitation or telemarketing. Individual policies offer a wide range of coverage; in fact, one significant advantage of individual policies is that they afford you the opportunity to compare various companies. Thus, you can purchase the precise coverage you need.

Group policies

Generally, group policies can be broken down into three categories: (1) those you purchase through your employer, (2) those you purchase from an association, and (3) those you purchase from an insurance company.

Employer policies

Your employer may provide an opportunity to enroll in a group LTCI plan. You (as the employee) would pay the premiums for this coverage, and the policy will typically offer protection without you having to pass a medical examination. Some plans also will let your spouse (and even parents) buy protection, although they typically must pass the insurance company's medical screening process to qualify. The type of coverage provided by employer-sponsored group plans is similar to that provided in individual policies. If you consider enrolling in such a plan, make sure that the policy contains an option to continue coverage when you retire or if your employment is otherwise terminated. Group plans may have certain advantages. For instance, when deciding to go with a plan, the employer's benefits manager presumably will compare a number of different companies and plans and negotiate the best value for the employees. In addition, employees often have the convenience of contacting the employer if they have any questions or complaints regarding the LTCI policy's benefits. In some cases, however, employees must deal directly with the insurance company.

Association policies

LTCI is also available on a group basis through various associations, such as the AARP. Often, insurance companies pay fees or commissions to associations for the sale of LTCI to their members. Therefore, the associations may have a financial interest in encouraging members to buy coverage. At the same time, large associations with many elderly members may be able to negotiate better rates and coverage than would be available to consumers through employer-sponsored or individual policies. In general, policies insured through an association are fairly similar to other types of LTCI policies. Members typically have a choice of benefit periods and deductible or waiting periods. In most states, association policies must allow members to maintain coverage after they leave the organization. This is an advantage over the typical employer-sponsored plan, although conversion or continuation provisions may be required in some states.

Insurance policies

Groups can also purchase policies directly from insurance companies.

How do group plans differ from individual policies?

There are some significant differences between group policies and individual policies. In group policies, for example, the sponsoring organization (i.e., the employer or association) and the insurance company usually reserve the right to change benefits and premiums without the consent of the individual policyholder. In fact, sometimes they even reserve the right to cancel the master policy or individual policies without the consent of the individual policyholder. As a result, consumers are at the mercy of the sponsoring organization, particularly if the sponsoring organization is an employer. Therefore, you need to review all policy provisions and rights to continue the policy after departure from your employer.

However, the group's large membership often helps it to negotiate lower premiums and perhaps better coverage, so there can be some significant advantages. In fact, it's likely that the cost of a group policy may be 5-10% less than the cost of an individual policy.

LTCI as part of an annuity or life insurance policy

Sometimes, long-term care coverage can also be combined with an annuity or life insurance policy. These hybrid products allow the policy owner to use the annuity cash value or the life insurance death benefit for long-term care expenses. As of 2010, LTCI benefits paid from a combination policy are tax free, if certain conditions are met. Also, cash values can be withdrawn from annuities or life insurance tax free to pay for qualified LTCI.


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