Long-Term Care Insurance
What the exam tests
Long-Term Care Insurance tests benefit triggers, policy design, inflation protection, tax treatment, and the boundary between Medicare and Medicaid. Expect claim scenarios involving ADLs and cognitive impairment.
Core rules
- Tax-qualified policies generally trigger when the insured cannot perform two of six activities of daily living for at least 90 days, or has severe cognitive impairment, and a plan of care is required.
- Key features: elimination period, benefit period, daily or monthly maximum, inflation protection, waiver of premium, home-care coverage, and nonforfeiture options.
- Reimbursement policies pay actual charges up to the limit; indemnity policies pay the full benefit regardless of charges.
- Premiums may be deductible within age-based limits, and benefits are generally tax-free up to the per-diem limit.
- Medicare does not cover custodial long-term care. Medicaid requires financial eligibility and has a five-year look-back. Partnership programs offer Medicaid asset protection when state requirements are met.
Worked example
A policy pays $6,000 per month for three years, a $216,000 pool. The elimination period is 90 days, so the insured self-funds about $18,000 before benefits begin. With 3% compound inflation for 20 years, the monthly maximum grows by 1.03^20 ≈ 1.806, to roughly $10,836. Without inflation protection, the fixed $6,000 buys far less care.
Traps that cost marks
Elimination periods may count calendar days or service days-read the contract. Home care is not automatic. An indemnity policy pays even if care costs less. Medicaid is not free care for everyone; transfers can trigger penalties.