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RPTE eReport

Spring 2024

Assessing Risk: The Importance of Discussing Long-Term Care Insurance with Clients

Don Levin


  • Amendments to the Social Security Act set standards for Medicare and Medicaid facilities, covering staffing, qualifications, fire safety, and services.
  • The Health Insurance Portability and Accountability Act of 1996 (HIPAA) standardized private insurance offerings.
  • Traditional and asset-based long-term care insurance policies, individuals can tailor their LTCI plan to suit their specific situation.
Assessing Risk: The Importance of Discussing Long-Term Care Insurance with Clients
Andy Dean via Getty Images

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Most people are particularly bad at assessing risk. For instance, although there is great concern about getting attacked by a shark at the beach, the probability of being attacked and killed by a shark is just one in 3.75 million. Meanwhile, over 50% of individuals turning age 65 are expected to require long-term care at some point. Why is it that some pay far more attention to the risk of a shark attack than that of requiring long-term care?

When long-term care is mentioned, many people immediately think of a nursing home. In reality, most requisite care takes place in the home. That’s why it’s crucial for clients to consider long-term care as an event to plan for, rather than a place. Not to mention, planning ahead for long-term care gives clients more options for their future care and helps them avoid exhausting their life savings paying the high monthly bill. 

Paying for Long-Term Care

Traditional long-term care insurance became available in 1974. Additional amendments to the Social Security Act enforced compliance with certain standards for facilities to participate in Medicare and Medicaid, including staffing levels, staff qualifications, fire safety, and delivery of services. With these changes, several insurance companies launched private long-term care insurance (LTCI), which gave individuals the opportunity to purchase an insurance to mitigate the risk of either paying for these services themselves or becoming reliant upon the public welfare system. 

Plus, in order to qualify for long-term care assistance via Medicaid, an individual must spend down their assets to a state-specific limitation (typically $2,000). (For applicants who are married, the healthy spouse can retain a separate amount that varies by state but is no more than $148,620.) To prevent applicants from giving away assets to meet these resource allowances, Medicaid enforces a lookback period of 60 months. If an applicant or their spouse has disposed of assets by gift or by sale for less than fair market value during the lookback period, they can and will be penalized and determined ineligible for benefits. 

In addition to the difficulty of meeting Medicaid’s strict qualifications, the ever-aging population in the U.S. and resulting long-term care services required threatens to run our public welfare systems dry. 

Despite nearly 50 years of long-term care insurance sales and the high risk of requiring care, only 10% of the general population has LTCI. As a result, Medicaid remains the number one payer of long-term care in the U.S.—currently sitting at 42.1%. While Medicaid is both federally and state funded, the program is regulated on the state level, meaning rules and requirements vary by state. What remains a constant is that Medicaid continues to be the largest line item in every state’s budget and is the primary reason that more and more states are on the brink of insolvency. As more Americans turn 65 and require financial assistance for long-term care, relying fully on Medicaid to cover these costs threatens the overall collapse of the Medicaid system.

Qualifying for Long-Term Care Insurance

With the advent of the Health Insurance Portability and Accountability Act of 1996 (HIPAA), the federal government standardized private insurance company offerings by mandating certain features and benefits for traditional long-term care insurance plans. Features include tax-qualification, allowing policyholders to deduct the cost of the premium based on annual attained age ranges, and benefit qualification factors based on basic triggers, such as requiring assistance with at least two activities of daily living (ADLs) or evidence of cognitive impairment. ADLs consist of transferring, bathing, dressing, toileting, eating. Organic cognitive impairment includes chronic conditions such as Alzheimer’s disease, dementia, Lewy Body Dementia (LBD), and Parkinson’s disease. Non-organic cognitive impairment may be caused by a traumatic brain injury (TBI) incurred during an accident or injury but may also include cases of depression and other behavior-related conditions that impair a person’s ability to safely care for themselves. 

Like other forms of insurance, long-term care insurance is designed to mitigate the risk of loss to the individual and their family. However, unlike other forms of insurance, LTCI is stringently underwritten based on an applicant’s current health and health history and is priced based on attained age. In other words, the older the applicant, the more premium they will pay. Additionally, the less healthy the client, the more likely they are to be declined LTCI coverage. For many years, insurance carriers collected family health history for anecdotal purposes only, but now most utilize it when considering the insurability of an applicant. To this end, applicants aged 40 to 45 have about a 12.4% chance of being declined coverage, and that risk jumps to 47.2% for those aged 70 to 74. This is further evidence that LTCI is paid for with money as well as requisite health. 

Since long-term care insurance must be purchased when an individual is healthy, it can be challenging for some to determine whether they are a good candidate. In general, individuals who meet the following criteria have a higher likelihood of qualifying for LTCI: have never been prescribed a handicap sticker; do not require help with any activities of daily living; have never been diagnosed with AIDS, HIV, or ARC disorders; have never been diagnosed with or presented symptoms of Alzheimer’s disease, dementia, memory loss, multiple sclerosis, muscular dystrophy, ALS, or Parkinson’s disease; and are capable of walking for blocks or climbing two flights of stairs.

The process of applying for LTCI coverage begins with an interview conducted by an LTCI professional, who will ask the applicant questions regarding their personal health, finances, family health history, and what they want the policy to cover. The LTCI professional will then tailor a plan to fit the applicant’s specific situation. In some cases, the insurance carrier may request the applicant’s medical records, typically based on age or health concerns. With the submission of a completed application, the entire underwriting process usually lasts four to eight weeks, usually depending on the promptness with which doctors respond to requests for their patient’s medical records.  

LTCI funds are typically available either on a reimbursement or indemnity basis after an individual qualifies for benefits. Again, basic triggers include a doctor’s diagnosis of cognitive impairment or certification that assistance is required with at least two activities of daily living for a period of at least ninety days.

Discussing LTCI with Clients

The most common reasons individuals purchase long-term care insurance include a desire to avoid being a burden on their family and loved ones, the preservation of assets, access to quality medical care, the maintenance of independence and decision-making, avoiding welfare services, and, finally, peace of mind.  

Some clients may push back against paying for something they may not utilize or evade purchasing LTCI coverage simply due to the sheer expense of a policy. As a result, carriers developed an alternative to traditional long-term care insurance. These products, often labeled as hybrid, combination, asset based, or linked benefit policies, are largely built on a life insurance policy or an annuity contract. Unlike a traditional long-term care policy, an asset-based policy offers more than just long-term care benefits. It also provides a death benefit typically equal to or more than the premiums paid. Therefore, the benefit is paid whether or not the policyholder needs long-term care. Any amount of the death benefit not used for long-term care while the policyholder is living is subsequently paid tax-free to beneficiaries. Adding even more flexibility, asset-based policies also offer liquidity, which allows the policyholder to redeem their cash value at will. For all the above reasons, these plans present the policyholder ultimate flexibility when it comes to LTCI. 

Despite a growing need for long-term care, the decades of policy data from both government and insurance carrier sources, as well as personal experience with family members requiring care, there is still a level of resistance, akin to denial, to purchasing LTCI. In most cases, a primer on LTCI will impart the requisite knowledge necessary for the client to make an informed decision that will lead them to purchase LTCI protection. Whether it is to mitigate risk, institute a stop-loss if they elect some level of co-insurance, or protect their portfolio and financial legacy, the wide range of coverage that is available today allows each individual client to obtain a policy that is tailored to their specific needs, desires, and financial circumstances.

Estate planning and elder law attorneys are in a unique position to have this crucial conversation with their clients. A failure to do so may expose practitioners to a degree of liability if the client, or a loved one, can establish that they were reliant on them for advice regarding the preservation of their estate.


With the advent of new medical procedures and advancements in the pharmaceutical industry, the population continues to live longer, prompting an ever-increasing need for expensive long-term care services. Unless more of the general population elects to privately insure this risk, the Medicaid system will be under an unrelenting burden to cover these services. Fortunately, with the availability of both traditional and asset-based long-term care insurance policies, individuals can tailor their LTCI plan to suit their specific situation. 

Since many people fail to properly assess their risk of requiring long-term care, it is imperative that attorneys discuss this risk with clients and guide them to fund a long-term care insurance policy before it’s too late.