Deciding to purchase long-term care insurance is a great first step, but it’s only the beginning.
Now, you have to decide the best terms for you, including the benefit period. Long-term care insurance benefit periods determine how long the policy may pay for your care once you qualify for coverage. Common options include two-, three-, five-, and lifetime benefit periods.
Each has its own pros and cons, including cost and protection tradeoffs to consider as you choose the right long-term care benefit period for you.
What is a Long-Term Care Benefit Period?
The benefit period is the element of your long-term care insurance plan that determines exactly how long your policy will pay for benefits once you qualify for care. Typical long-term care insurance policies may include benefit periods of two to five years, while some may even offer lifetime benefits.
However, just because the benefit period is specified in years doesn’t always mean the policy will pay for exactly that many calendar years. Benefits may be used faster or slower depending on the daily or monthly benefit amount and the actual cost of care.
For example, some policies have a maximum daily benefit. If yours is $150 and your care in a skilled nursing home only costs $100 per day, you don’t lose that $50. Instead, it stays available for your care and can even be used to extend it outside the benefit period.
Common Benefit Period Options
Your LTC policy’s benefit period is an important decision. It partially determines the overall cost of long-term care insurance. While it can be tempting to choose the longest period that you can afford, that may not be the smartest choice.
Here’s an overview of benefit periods and why a person may opt into them.
- Two-year benefit period: A lower-cost option that may work for individuals who want some long-term care protection but need to keep premiums more affordable.
- Three-year benefit period: A common middle-ground option that may cover many typical care needs without the higher cost of longer benefit periods.
- Five-year benefit period: A strong option for individuals who want more protection, especially if they have a family history of illness, longevity concerns, or want to protect their financial assets.
- Lifetime benefits period: This is the most comprehensive option, covering care for as long as you may need it. However, it’s also typically the most expensive and is becoming less commonly available than it once was.
Typically, the longer the benefit period – i.e., the maximum timeframe you can receive care – the more expensive the policy will be.
How Long Do People Usually Need Long-Term Care?
According to a report by the Office of the Assistant Secretary for Planning and Evaluation at the U.S. Department of Health and Human Services, if you live to be over the age of 65, there is a 70 percent chance that you will need some form of long-term services and support in your lifetime.
A variety of factors impact whether or not you will need to receive care, including your health, family history, age, socioeconomic status, lifestyle, and even your gender. For example, on average, women need care for about 3.7 years, while men require services for 2.2 years. About 20 percent of both men and women may need care for longer than five years.
While there is no guarantee that you will need to receive long-term care in your lifetime, your odds increase the longer you live. Long-term care insurance can help make that care more affordable.
Factors That Can Help You Choose the Right Benefit Period
Choosing the right benefit period can feel overwhelming. You don’t want to make the wrong choice and then be forced to cover your long-term care needs out of pocket if they exceed your policy coverage.
To help you decide, consider the following factors.
- Budget: Exactly how much can you afford for LTC insurance each month? Remember to account for inflation, as premiums can increase year over year to reflect the rising cost of care. As a general rule, longer benefit periods usually mean higher premiums.
- Family health history: Look back at your parents and grandparents. What was their health like? A family history of dementia, Alzheimer’s, Parkinson’s, or long life spans in your family may increase the need for stronger – and longer – protection.
- Personal savings and assets: What is your personal financial situation and the legacy you want to leave behind? People with more assets may want longer coverage options to help reduce the risk of depleting their assets if they need to pay out of pocket for care.
- Family planning: Couples should consider their spouse or partners in their long-term care plans. You may want to protect the healthy spouse’s income and savings.
- Risk tolerance: How risk-averse are you? Some people prefer more affordable partial protection, while others want the most complete coverage available just in case.
Long-term care insurance professionals can also help you consider your options, breaking down the trade-offs between policies based on your personal financial situation and long-term care goals.
Shorter vs. Longer Benefit Periods: The Tradeoff
There is a simple trade-off when it comes to benefit periods.
- Shorter benefit periods can make coverage more affordable. The monthly premiums will be lower, making long-term care coverage more accessible. However, shorter benefit periods may carry a higher risk, especially regarding out-of-pocket costs. If care lasts longer than expected, you will need to pay for it yourself.
- Longer benefit periods offer greater protection, but it may stretch the budget. Monthly premiums are often higher, but they come with more comprehensive coverage. Your care needs are less likely to exceed the benefit period, so you will pay more in the short term, but realize larger long-term gains when you don’t have an out-of-pocket cost later.
Your goal when selecting a benefit period is to provide meaningful protection for you and your family without creating an unaffordable premium. You don’t want to secure coverage you cannot afford in the long term.
Is Lifetime Coverage Worth It?
Lifetime benefits may sound ideal for many. After all, you don’t know how long you will need care, so you are not limited by a set time. However, they are not always necessary – or even affordable for everybody.
Lifetime coverage may be worth considering in the following scenarios:
- If you have significant assets
- If you have a strong family history of long-term care needs
- If you have a desire for maximum peace of mind
Keep in mind that lifetime coverage is becoming less and less common, so it may be more challenging to secure an LTC insurance policy with these terms.
Why Inflation Protection Also Matters
The benefit period is only one part of your long-term care insurance policy. There are other elements you need to consider, especially inflation protection.
A three-year or five-year policy may not provide enough protection for your long-term care needs if the daily or monthly benefit does not keep pace with rising care costs.
For example, according to the Federal Long Term Care Insurance Program Cost of Care Survey, if inflation continues to rise about 2.54 percent each year, the average cost of long-term care in a nursing home will be about $186,000 in 20 years. That is about $510 per day.
If your benefits don’t keep up with inflation year over year, the rising cost of care will likely cause your policy to run out before the benefits period. If that happens, you will need to cover the cost of care out of pocket or find alternative care.
Inflation protection can help prevent that from happening and preserve the value of your policy. As a result, your policy should keep pace with inflation and allow you to realize the maximum intended benefits if needed.
Questions to Ask Before Choosing a Benefit Period
Here’s what you need to ask yourself when it comes to choosing a benefit period.
- How much premium can I comfortably afford over the long term?
- Do I want basic protection or more comprehensive coverage?
- Do I have a family history of extended care needs?
- How much of my savings would I be comfortable using for care?
- Would a 3-year or 5-year option give me a better balance of cost and protection?
Financial advisors and insurance professionals can help you determine these answers and more, so you can better plan for your future.
Conclusion
There is no one-size-fits-all benefit period. You have to look at what’s best for you, given your finances and future goals.
For example, a two-year policy may be enough for someone focused on affordability, while a three-year or five-year policy may provide a better balance for many families. Lifetime coverage offers the most protection, but it can be unattainable for some budgets.
The right choice depends on your budget, health history, assets, and long-term care planning goals. You don’t have to make that decision alone.
Reach out to Lavine LTC Benefits for all your long-term care insurance needs, including help with benefit periods, LTC planning, and questions about coverage needs.
We are here to help you find an LTC policy that fits your budget and care goals.
Frequently Asked Questions
What is an LTC Benefit Period?
A benefit period is the time that your policy is designed to pay benefits once you qualify for care. It is one of the most important parts of a long-term care insurance policy.
What are Common Benefit Periods?
Typical benefit periods include two, three, or five years. There are also lifetime benefit periods available, but these policies are becoming less common.
How Do I Choose a Benefit Period?
Your budget, health history, family history, financial assets, and long-term planning goals can all help determine which LTC policy is right for you. There is no one-size-fits-all policy; consult a financial or insurance professional for additional guidance.