If you need to use your long-term care insurance to pay for needed care and services, it’s important that you know when your policy will begin paying for care, how it will pay for services, and for how long.  Let’s look at each component:

What Your Insurance Will Pay

We’ve already discussed what types of services, in what settings, your insurance policy may pay for.  But how much will it pay?  Most long-term care insurance policies will pay out a Daily Benefit Amount (DBA) or a Monthly Benefit Amount (MBA).  A DBA limits the amount of money that the insurance company will pay per day for services.  So, for example, if your company provides a DBA of $200 and your in-home assistance costs $320 you will need to pay the additional $120 per day out-of-pocket.  However, if your policy pays out a MBA then you will have a monthly lump sum that you can use toward long-term care costs.  So if your policy pays out a $2,500 MBA you will need to budget that money to cover all anticipated expenses in any given month.  Any expenses beyond the lump sum in a given month (in this case $2,500 per month) will be your responsibility.  The amount of your benefit amount for DBA and MBA is based largely on the cost of services in your area.

When Your Insurance Will Pay Out

Like disability insurance, long-term care insurance coverage comes with a waiting period – in other words there is a required period of time, for example 60 or 90 days, between when you require assistance, and the time that your policy will pay out benefits for the care needed.  That can be a rude shock to you and your family if you don’t anticipate it and don’t have money saved to pay for needed services out-of-pocket before your insurance kicks in.  When evaluating potential policies, ask what the waiting period is and if you have a choice to either reduce the waiting period or lengthen it.  Changing the waiting period length will affect your premium – the rate you pay for the insurance coverage.  The shorter the waiting period, the higher the premium and the longer the waiting period, the lower the premium.

How It Pays Out Benefits

Policies will pay out benefits in one of three ways:

• Direct payment.  Some companies will only pay the care provider (i.e. nursing home, assisted living facility, home health agency, etc.) directly.
• Reimbursement.  Some companies will only reimburse policyholders for receipted expenses they claim.
• Monthly lump sum.  Some companies will send the policyholder a monthly check for the monthly lump sum benefit and it becomes the policyholder’s responsibility to pay for any necessary care with that money.

Make sure you know how the policy you purchase pays benefits.

How Long Your Insurance Will Pay Out     

When you purchase your policy you will be able to select how long you want coverage – for example, 3 years, 10 years, or for your lifetime.  In addition to a daily benefits amount (DBA) or monthly benefits amount (MBA), there may be a maximum limit on benefits that your policy will pay out within a given year.  Policies with longer benefit periods (i.e. for lifetime coverage) may also have a maximum dollar limit for care, i.e. $500,000.  Once the $500,000 in benefits has been paid, coverage will cease even if the policyholder may still be living and require care.  It is important to understand exactly what limits there may be on your policy’s benefits period so that you don’t find yourself without insurance funds when you need them most.