When Do Long-Term Care Benefits Kick In?

Life insurance claims are pretty easy to process. Either there is a death certificate on the insured, or there isn't. But with some types of insurance, events that qualify you for coverage aren't so easy to get a handle on.

​For example, with long-term care insurance, benefits often become payable after a long and gradual decline in the insured's health and ability to care for themselves. While there are always going to be some gray areas, the answer for LTC insurance lies in the language of the contract itself.
 
ADLs
The first concept to become familiar with is the term ADL, which stands for "activities of daily living." ADL is simply shorthand for the routine, mundane tasks most of us take for granted — until we can't do them anymore.

For the purposes of LTC insurance underwriting, the IRS requires tax-qualified policies to use the ADLs listed below:

• Continence: The ability to hold urine.
• Transferring: The ability to get out of bed independently, or to transfer oneself from a bed to a chair.
• Toileting: The ability to toilet oneself.
• Dressing: The ability to dress oneself without assistance.
• Bathing: The ability to attend to basic tasks of personal hygiene.
• Eating: The ability to feed oneself.

 
Absent a debilitating cognitive impairment, such as Alzheimer's or dementia, the IRS requires tax-qualified policies to initiate benefits if the insured is unable to perform any two of these ADLs without assistance.

Generally though, policies do have a provision in place to begin awarding benefits to those diagnosed with severe cognitive impairments, even if they are still able to perform five or more of the ADLs by themselves.

Your policy will define the specific instances in which a long-term care benefit becomes payable for those with these kinds of medical issues.
 
Hands-on vs. supervised assistance
Some policies become payable only when two or more of these ADLs require "hands-on" assistance for the insured individual to perform. Other policies become payable when the insured requires supervision and prompting, but not necessarily hands-on assistance.

All things being equal, the latter version of the contract is preferable. But these policies typically come with higher premiums, since they are more likely to have to pay out benefits, or have to pay them out over a longer period of time. Premiums must, in the long run, reflect that higher likelihood.
 
Likelihood of needing long-term care
The likelihood of needing LTC assistance increases rapidly, though, once you get older. According to the AARP, the likelihood of a 65-year-old needing LTC services at some point in their remaining life is 68%. This is one reason why the insurance is expensive.
 
Exclusion period
Typically, LTC policies aren't payable immediately upon diagnosis. The insured is expected to retain some of the risk. For example, policies may have an exclusion period of 60, 90 or 180 days.

During this period, the insured pays out of pocket, or finds some other resources to pay LTC costs. This helps keep premiums affordable by keeping minor events requiring rehabilitative care rather than chronic, long-term conditions out of the risk pool.

The insured should strive to have liquid savings or other resources sufficient to cover LTC costs during the exclusionary period.
 
Long-term care and Medicare
Note that Medicare also has limited LTC benefits.
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However, Medicare will only pay for up to 100 days of long-term care, and only pursuant to a qualified hospitalization. It does not provide significant benefits for chronic conditions that are truly long-term in nature.