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5 questions to ask when considering long-term care insurance options

You’re happy and healthy. And you hope it stays that way for years to come.

In fact, you’re looking forward to retirement, when you can start checking off items on your bucket list.

Become a master gardener. Travel around the country in your RV. Or volunteer at the local animal shelter. Something you probably don’t look forward to is needing health care, which gets more expensive every year.1

There are long-term care insurance options you can consider to ensure the retirement nest egg you worked so hard to earn is preserved and help relieve your future caregivers (often family members) from financial and emotional stress later on.

Start thinking about long-term care insurance options while you’re healthy

It’s important to begin the process now while you're still healthy so that you can secure coverage, because with every passing day, the odds of needing care increases.2

Most Americans turning age 65 will need long-term care services at some point in their lives. And the older you are, the more likely it is you will need long-term care.3

Plus long-term health care can be expensive. The median annual cost for a private one-bedroom in a nursing home is $108,199 and a home health aide typically costs more than $57,000 per year. And that's just how much these services cost in 2023 — prices are expected to increase even more in the future.4

Questions to ask your financial professional

It’s always a good idea to consult a financial professional as you plan for the future. But whether or not you speak to a financial professional, here are five questions to consider as you think about your long-term care insurance options:

1. What are my insurance options for covering long-term care?

There are several kinds of long-term care (LTC) insurance policies, including traditional and hybrid options. And because Medicare doesn’t pay for LTC, it’s important to understand the pros and cons of each type so you can choose the policy that’s best for you.

Traditional LTC

If you need LTC and go on claim, this type of insurance may provide some of the most robust benefits to help cover the costs of your care — depending on the policy structure and benefits. These policies stay in force as long as you keep paying the premiums, and although they may be affordable and less expensive than a hybrid policy initially, over time, the cumulative out-of-pocket costs can add up. Also, if you don’t need LTC, you generally won’t receive any benefits from your policy. Traditional LTC policies sold today do not offer guaranteed premiums or benefits so premiums may increase over time.

Hybrid LTC

Hybrid policies (typically a combination of life insurance or an annuity with long-term care insurance) guarantee premiums will never increase and benefits will never decrease. They also may offer a return of premium option so you can get your money back if you decide to give up your policy. They provide an income tax free death benefit and inflation protection options to help your LTC benefit keep up with rising health care costs. 

Hybrid policies are typically available as a single premium (up front) or multi-pay (various payment periods which vary by the product). Due to the shorter premium durations, hybrid policies may be more expensive in the short-term compared to traditional policies.

Hybrid LTC policies are becoming increasingly popular — some 559,000 policies were sold in the United States in 2021.5

2. What does LTC insurance generally cover?

Long-term care insurance may cover expenses related to assisting chronically ill people with their personal care needs, such as bathing, dressing, and moving between a bed or chair. It can also involve helping them accomplish everyday tasks, such as housework, managing money, preparing meals, shopping, and caring for pets.6

Policies may also help pay for home- and community-based services, such as adult day care, caregiver training, home health care options, and respite care. They generally cover facility-based services, like assisted living, hospice, and nursing home care.

3. How will I receive benefits?

Your benefits will typically begin when you are certified as being chronically ill by a licensed health care practitioner and have satisfied your elimination period. This means you can’t perform at least two daily living activities due to a loss of function or you need supervised protection due to severe cognitive impairment.

You can receive your benefits in one of two ways, either as a reimbursement for expenses incurred, or through a set monthly benefit amount often referred to as cash indemnity. With a reimbursement policy, you must first pay for qualifying medical expenses out-of-pocket, and then submit a receipt to the carrier to be reimbursed. On the other hand, once you qualify to receive benefits from a cash indemnity policy, you receive a monthly cash benefit that you can use to cover any of your care expenses, such as informal care, medical equipment, prescriptions, and even housekeeping and home maintenance needs.

4. What happens if I buy a policy but don’t need long-term care?

Traditional LTC insurance is generally “use it or lose it”, which means you won’t get any benefits from your policy if you don’t need LTC. Some traditional LTC insurance may allow you to get your money back if you decide you no longer want the policy, but this feature tends to be very expensive.

Hybrid LTC insurance will typically pay a death benefit if the policy is not used for long-term care costs. Also, many hybrid LTC policies offer a “return of premium” feature, which means if you give up your policy you can get back some or all of the money you have paid as premium.

5. Are there tax benefits to long-term care insurance?

For traditional LTC insurance, all or a portion of the premium may be tax-deductible based on some IRS limitations and qualifications. However, other than a handful of hybrid policies, the premiums associated with these plans are generally not tax deductible.

When it comes to how your LTC benefit may be taxed, LTC benefit payments are not taxable so long as:

  • Your benefit is equal to the actual expenses incurred, or
  • Your benefit is less than the IRS per diem ($420 in 2023)7

A rewarding life is really about being present in the here and now. Planning for your future health care can help you and your family do that. So you can enjoy the everyday moments — and confidently look forward to the major milestones, like retirement.

Insurance products issued by Minnesota Life Insurance Company.

1. Peter G. Peterson Foundation. "Why are Americans paying more for health care."  January 30, 2023.

2. If owner/insured are different, benefits will be paid to the owner upon the insured being certified as a chronically ill individual. 

3. Administration for Community Living and Administration on Aging. "Who Needs Care?" May 5, 2022.

4. LTC News. "Cost of Long-Term Care in Your State." 2023.

5. Life Insurance Marketing and Research Association (LIMRA). "Sales of Life Combination Products Rebound in 2021." August 9, 2022.

6. Administration for Community Living and Administration on Aging."What Long-Term care Insurance Covers." February 18, 2020.

7. IRC Section 213(d)(1)(D)

Please keep in mind that the primary reason to purchase a life insurance product is the death benefit.

Insurance policy guarantees are subject to the financial strength and claims-paying ability of the issuing insurance company. 

Long-term care agreements and policies have exclusions and limitations. For costs and complete details of coverage please contact your financial professional.

Agreements may be subject to additional costs and restrictions. Agreements may not be available in all states or may exist under a different name in various states and may not be available in combination with other agreements.

The purpose of this material is the solicitation of insurance. An insurance agent or company may contact you.

This policy has exclusions, limitations and reduction of benefits, under which the policy may be continued in force or discontinued. For costs and complete details of the coverage, call or write your producer or Minnesota Life Insurance Company.

This information is a general discussion of the relevant federal tax laws provided to promote ideas that may benefit a taxpayer. It is not intended for, nor can it be used by any taxpayer for the purpose of voiding federal tax penalties. Taxpayers should seek the advice of their own advisors regarding any tax and legal issues specific to their situation.

For use in Connecticut, New Jersey, and states where this product is available under the Interstate Insurance Product Regulation Commission (IIPRC).

DOFU 11-2023