How a LTC Policy Works

A top-quality standalone LTC policy can provide guaranteed inflation-adjusted tax-free LTC benefits, should one need it, and if not, the Principal is returned. The benefit amount varies by age.

Long Term Care (LTC) costs can be quite expensive. Unfortunately, Medicare does not cover LTC, and Medical requires spending down of one’s assets before coverage can begin. Therefore, the health-related financial risk posed by LTC needs to be managed through an insurance policy.

LTC insurance coverage can be obtained through a single-purpose LTC policy or as a benefit rider option attached to an Indexed Universal Life (IUL) or Annuity policy. A LTC policy is priced based on morbidity risk (risk of illness), while a Life Insurance policy is priced based on mortality risk (risk of death).

Let us go through an example in which a 55-year old male purchases a standalone LTC policy with a $50K single premium. The benefit level starts with a $148K benefit pool which can provide a maximum monthly benefit of $2.2K for 5 years. The benefit amount increases with age, compounding at a 5% annual rate. If this LTC benefit is taken at age 80 instead of 55, then the benefit pool would have increased to $501K with a maximum monthly benefit of $7.6K for 5 years. If the monthly benefit taken is less than this maximum amount, then the benefits will last longer than 5 years until the benefit pool is exhausted, and should the insured still require LTC. If, however, the insured passes away without requiring any LTC at all, then the premium paid will go to their beneficiary.

The LTC cost in 25 years, adjusted for inflation, is about $500K based on a 4-year length of care at home and in a nursing home. The cost details are highlighted in our blog “LTC Facts and Economics.” Our example policy is designed to meet this cost. However, it is still far below the maximum tax-free limit HIPPA allows, which is currently at $11K per month. The coverage can be increased 3x to fully utilize the tax-free HIPPA limit. Note that all these benefits can even go to a family member who provides LTC at home for the insured. An indemnity type LTC policy will payout these benefits without requiring receipts. Please refer to “LTC Policy Design Considerations” for other parameters important to selecting a good LTC policy.

We specialize in tax-free retirement strategy and investments such as IUL, Annuity and LTC. Prefer a quick and complimentary consultation? Just email us at

[thrive_leads id='5154']

Leave a Comment

Your email address will not be published. Required fields are marked *