Before You Buy a Long Term Care Policy, Know These Five Things

The decisions you make when designing a policy matter far more than most people realize.

Most people shop for long term care insurance the same way they shop for most insurance. They want the lowest premium that still feels like real coverage. That instinct makes sense for car insurance. For long term care, it often leads to a policy that falls short exactly when it is needed most.

The decisions you make when designing a long term care policy matter more than almost anything else about it. Here is what you need to understand before you sign anything.

1. Start With the Monthly Benefit, Not the Premium

The monthly benefit is the maximum the policy pays each month for care. Home care accounts for roughly 80% of all long term care, and in most California communities that runs between $5,000 and $7,000 per month. That is your starting reference point.

The thing most people miss: you do not need a policy that covers 100% of care costs. Your other income sources, Social Security, a pension, planned investment withdrawals, all count toward the total. A policy that covers the gap between your income and the actual cost of care is usually the right target. Starting at $5,000 per month and adjusting from there is a reasonable approach for most people.

2. Understand How the Policy Actually Pays You

For most people a reimbursement plan is the right starting point. An indemnity plan makes sense in specific situations and is worth discussing if flexibility and simplicity are priorities.

3. The Elimination Period Is Not as Simple as It Sounds

Think of the elimination period as the deductible on your policy. It is the number of days you pay for care out of pocket before benefits begin. Standard options run from 30 to 180 days.

What most people do not know is that how the elimination period gets counted can change everything.

Regardless of which policy you choose, you will need enough liquid savings to cover care costs during the elimination period. That cushion is essential.

4. Know How Much Total Coverage You Actually Have

Most insurers calculate total coverage by multiplying your monthly benefit by the number of months of coverage you select. A $5,000 monthly benefit with a 36 month benefit period gives you a $180,000 total pool to draw from.

For couples, shared care policies let both spouses draw from a combined benefit pool. If one partner needs more care than their individual policy would cover, they can draw on the other's allocation. Consider a husband and wife who each have two year benefit periods. With a shared care rider, that becomes a combined four year pool. If one spouse needs intensive care for an extended period, the full four years can be directed toward their needs. For couples where one person may face a longer or more intensive care event, shared care is a meaningful option worth exploring.

5. Inflation Protection Is Not Optional in California

Care costs in California have risen roughly 5% annually. A policy built around today's costs will not cover the same level of care in 15 or 20 years without inflation protection built in.

The old standard was 5% annual compound growth. Current guidance suggests 2 to 3% may be adequate in some communities, though in higher cost areas like the Bay Area that number can still fall short over time. The right level depends on local care cost trends in your area. Getting this wrong in the direction of too little protection quietly erodes coverage over the years, and nobody notices until a claim is actually filed.

One More Thing Worth Knowing

Nearly all long term care policies sold today are tax qualified, which matters for two reasons. First, benefits are generally received tax free. Second, a tax qualified policy only begins paying when a licensed healthcare practitioner certifies that you need help with at least two of the six activities of daily living, or that you have a cognitive impairment requiring supervision. That certification needs to be renewed annually.

Lower intensity care needs, like help with grocery shopping, transportation, or medication management, do not typically trigger a tax qualified policy. Non tax qualified policies that cover those situations exist but are rare. This is worth understanding in advance so you are not caught off guard during the period when you need support but do not yet meet the formal benefit trigger.