Elimination Period for Long-Term Care: How It Works

Even though it might be hard for you to imagine it right now, there’s a good chance that you’ll need some help taking care of yourself later in life. The solution for many people is long-term care insurance.

Jump ahead to these sections:

• What’s an Elimination Period for Long-Term Care Insurance?
• What’s the Difference Between a Waiting Period and an Elimination Period?
• How Long Does an Elimination Period Typically Last?
• Why Do Insurance Policies Have Elimination Periods?
• Can You Reduce Costs During an Elimination Period?
• Tax Advantages of Buying Long-Term Care Insurance
• How to Buy Long-Term Care Insurance

Long-term care insurance policies are there to help people pay for nursing home care, assisted living facility care, home care, and much more. Like most types of insurance, it’s best to apply for it when you’re younger and healthy. Many financial advisors recommend that their clients purchase long-term care insurance in their mid-forties to early fifties while coverage is still affordable and they’re in relatively good health.

Several other factors besides age and health determine how much you’ll pay for long-term care insurance. The average daily benefit and how long the insurance company will pay that benefit are two important factors in pricing that you’ll decide on when you apply for a policy.

But there’s another big decision you need to make when applying for coverage: the length of the elimination period.

What’s an Elimination Period for Long-Term Care Insurance?

The elimination period is that period of time that must pass from the date you start receiving care to the date that the insurance company that issued the policy will begin to pay benefits. 

For example, if you purchase a policy with an elimination period of 90 calendar days and you are admitted to a nursing home on October 1st, the insurance company won’t begin paying for the nursing home stay until December 29th, which is 90 days after admittance.

An elimination period is like a deductible with health insurance. No claims you submit will be paid until certain conditions have been satisfied. With health insurance, it’s your deductible. For long-term care insurance, it’s your elimination period.

What’s the Difference Between a Waiting Period and an Elimination Period?

Many people have been told that the “waiting period” is just another name for the elimination period because you have to wait to receive benefits. But that’s not accurate.

The waiting period is the period of time that begins when your policy is issued and ends when the policy owner can start to receive benefits. 

The elimination period begins at some point after the waiting period is over and when the insured incurs a benefit trigger event.

For example, some policies have a waiting period of six months. That means they won’t start considering a claim until that six-month period has passed. The policy is unusable up to that point.

Once the waiting period has passed, the elimination period can begin. So, a person covered by a policy with a six-month waiting period and a 90 day elimination period won’t start to receive any benefits for at least nine months after the policy is issued.

How Long Does an Elimination Period Typically Last?

Elimination periods typically last for 30, 60, or 90 days, though a few companies issue policies with a 180 day waiting period. 

The length of the elimination period directly influences the cost of the monthly or annual premium. The longer the elimination period, the lower the premium. This is similar to health insurance, where higher deductibles equate to higher premiums.

For example, the pricing on a long-term care policy with different elimination periods could look like this:

• 30 day elimination period: $500 per month
• 60 day elimination period: $400 per month
• 90 day elimination period: $300 per month

Having a longer elimination is just one way of reducing your monthly premium and taking advantage of your long-term care options.

Why Do Insurance Policies Have Elimination Periods?

Insurance companies have elimination periods for one reason: it increases their profitability. And it does that in a couple of ways.

First, insurance companies pay a lot less in claims because of elimination periods. For example, with the average cost of a semi-private room in a nursing home costing about $8,000 per month, a 90 day elimination period saves the insurance company about $24,000. 

Second, an insurance company’s administrative costs are lower because of elimination periods. Fewer claims are filed because of elimination periods, meaning that fewer hours are being spent by insurance company personnel processing claims. 

With an elimination period of 90 days, someone who received 40 days of home care wouldn’t file a claim because they weren’t anywhere close to satisfying their elimination period. 

Can You Reduce Costs During an Elimination Period?

Yes, you can reduce costs during your elimination period, depending upon a couple of variables.

1. If your policy has a calendar day elimination period, you’re going to have to pay out-of-pocket for any care you receive during that period. 

With a 90-day elimination period, you’ll be paying for everything. You can save money by receiving minimal help or having family members stand in during the elimination period. 

As long as the event that triggered the elimination period is still a factor after 90 days, you won’t have to personally pay for covered charges starting on the 91st day.

2. If your policy has a service day elimination period, things work a little differently.

A service day elimination period is based on the actual number of days that you are receiving services. For example, if you only receive care twice a week, only two days per week will count towards your elimination period. At that rate, it could take close to a year for you to meet your 90 day elimination period.

Again, you can reduce costs by having family members help out as much as possible. But be aware that some home care agencies require you to receive care from them for a minimum number of hours per day, often a 4-hour minimum.

3. Use health insurance to pay for your care during your elimination period. Many health insurance policies will pay for some of the same benefits as long-term care policies. If you’re fortunate enough to have both types of policies, be sure to file claims with each carrier once you begin receiving care.

4. If your policy has a service day elimination period, it may have an enhanced elimination period rider. This rider accelerates the elimination period, which lowers your out-of-pocket costs.

For example, with this rider, if you receive long-term care just one time during a seven-day period, it is counted as seven days against your elimination period.

5. Some policies with service day elimination periods also require you to receive care on consecutive days. For example, with a 30 day elimination period, you can’t miss a day of care during those 30 days, or benefits won’t be paid. 

You can save money by only receiving the minimum number of hours of professional care each day and having your family help out during the other hours.

As you can see, you must know your policy’s terms and conditions. Review a sample policy when you’re shopping for long-term care insurance, and read the policy over after you receive your official policy. 

Having a trusted advisor, like an attorney or financial planner, review your policy is also helpful. If you don’t like what you see, you always have a 30-day free look period where you can return the policy, and the insurance company has to refund you any premiums you paid.

You may have also noticed that service day elimination periods have nuances and conditions that calendar day elimination periods don’t have. Keep that in mind when shopping for long-term care insurance for parents or yourself.

Tax Advantages of Buying Long-Term Care Insurance

If you itemize your deductions when you do your taxes, especially as you get older, there are some tax advantages with long-term care insurance. The federal tax code and some state tax codes allow you to count all or part of your long-term care insurance premiums as “medical expenses.” Medical expenses are deductible as long as they meet a certain threshold. 

Bear in mind that your long-term care insurance policy must qualify for you to be able to deduct your premiums. Ask your agent or the insurance company before you sign an application if their policies qualify. 

How to Buy Long-Term Care Insurance

There are a couple of different ways you can buy long-term care insurance. 

One way is through your employer if they offer it as an employee benefit. You can buy it as part of group coverage, which will give you lower group rates. It’s normally easier to qualify for group long-term care insurance than if you buy it on your own. But remember that if or when you leave your employer, you most likely won’t be able to bring your coverage with you.

If your employer doesn’t offer group long-term care insurance, you can always purchase an individual policy. The rates will typically be higher than group rates, but you won’t have to worry about losing coverage because you changed jobs or retired.

It’s important to note two additional benefits of individual policies:

1. Your policy is guaranteed renewable. This means that the only way the insurance company can cancel your coverage is if you don’t pay your premiums.
2. With individual policies, you also can’t be singled out for a rate increase. All policyholders with the same policy as yours in your state can’t have their rates raised unless everyone in that class has their rates raised.

Long-Term Care Insurance is a Long-Term Investment

No one enjoys paying insurance premiums, which is why most people don’t have long-term care insurance. It’s the type of insurance you don’t need to have, but you will probably need and receive some long-term care in the future. Look at a long-term care insurance premium as an investment in your future that will preserve your money for the next generation. 

Source: 

1. “Internal Revenue Bulletin: 2020-45,” IRB, IRS, 2 November 2020. Irs.gov