Understanding Benefit Period with Long-Term Care Insurance

Medical innovation is causing people to live longer. The challenge of increased longevity causes an increased risk of needing Long-Term Care later in life.

By Joshua Rodriguez | CBSNews.com (Curated by Paul B. Plant)

Medical innovation is an incredible thing. Thanks to recent advancements on the medical stage, people around the world are living longer now than ever before, according to the World Health Organization. That's great news, but it does pose some challenges.

Key Points

• Thanks to recent advancements on the medical stage, people around the world are living longer now than ever before.

• Unfortunately, that care can be expensive — typically costing tens, or even hundreds, of thousands of dollars per year. Many plan for that expense with long-term care insurance.

• Factors to consider when choosing a benefit period.

One of the most significant challenges posed by living longer is an increased risk of needing long-term care later in life. Unfortunately, that care can be expensive — typically costing tens, or even hundreds, of thousands of dollars per year. Many plan for that expense with long-term care insurance.

However, when you buy long-term care insurance, you'll need to decide on the benefit period you want with your plan. But what exactly is a long-term care insurance benefit period and how do you decide on one?

What is a long-term care insurance benefit period?

A long-term care insurance benefit period is the minimum amount of time your long-term care insurance provider will pay out benefits if a qualifying event takes place. However, you may receive benefits longer than your contracted benefit period.

"The average long-term care event is 2.7 years long," says Lamar Brabham, CEO and founder of Noel Taylor Agency, a financial planning firm. "As a result, the normal long-term care policy offers three years of coverage. A standard long-term care policy has a duration period and a maximum daily benefit. Multiplying these numbers gives you the maximum benefit pool."

"If, for instance, you have a $175 per day benefit, and your assisted living cost is $125 per day, the excess $50 per day will remain in the pool and can extend the duration beyond three years," says Brabham.

Factors to consider when choosing a benefit period

When you purchase long-term care insurance, you can typically choose a benefit period ranging from two to five years. Some insurance providers offer longer — and even lifetime — benefit periods. So, what factors should you consider as you make your choice?

The average long-term care event

It's important to consider how long the average person needs long-term care services. After all, there's a high probability that your needs will be similar.

"According to the U.S. Department of Health & Human Services, the average long-term care need in the U.S. differs slightly between men (2.2 years) and women (3.7 years)," says Larry Nisenson, chief growth officer at Assured Allies, a financial planning firm focused on helping consumers age successfully. "This is of course dependent on the nature and severity of the underlying condition but is a good starting point."

So, if you're a man, it's likely wise to purchase at least three years of coverage while women should consider purchasing at least four years of coverage.

Whether you'll have family support

"Other considerations include whether formal care is needed or if family members are going to provide some level of unpaid support," says Nisenson. After all, if your family is going to provide a substantial portion of your care, you may not need such a large pool of coverage.

On the other hand, some long-term care insurance providers may pay your family members to provide the care you need. So, consider whether or not your family will be involved in your care — and whether or not you intend for them to be paid to care for you — as you shop for your policy.

Your budget

"Affordability is always a consideration and generally the longer the benefit period, the more expensive a policy is," Nisenson says. So, you'll have to consider your budget as you decide how long your benefit period should be.

The bottom line

A long-term care insurance benefit period represents the minimum amount of time your insurance company will pay for the costs of your long-term care. Moreover, there are multiple factors to consider when determining how long your benefit period should be.

The good news is that you're not alone in making your decision. "Fortunately, agents are adept at helping consumers determine the right type and amount of coverage based on" their unique needs, says Nisenson.

Full Story

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