Restoration of Benefits in Long-Term Care Insurance


Have you been thinking about buying long-term care insurance for parents or yourself? If so, you’re going to be exposed to a lot of information and statistics before making your decision about which policy to buy.

Jump ahead to these sections:

You may be asking questions like, "Which company should I buy from?," "How much coverage will I need?," "How long will my coverage last?," and "Can I use my policy multiple times?".

These are all good questions, and this article will concentrate on the fourth question. We’ll be looking specifically at something called “restoration of benefits,” which is included with some policies or is an extra benefit (rider) you can purchase with others.

What Is Restoration of Benefits in a Long-Term Care Insurance Policy?

It’s not unusual for aging adults to stay in a nursing home or convalescent care facility, return home while recovering from an illness, and then return to a care facility again in the future. When they return home, they may require in-home care or skilled nursing care for a while.

Most long-term care insurance policies provide benefits for those stays and home care services, for which the cost to the insured can escalate quickly. 

There is good news and bad news about having long-term care coverage when you use it. The good newsyou didn’t have to pay out of pocket for your facility or home care bills. 

The bad newsyour policy has a lifetime benefit dollar limit, and the amount your insurer paid for your claims is deducted from that limit. One expensive claim can exhaust most of your benefits, leaving you with just a fraction of the benefits you might have had otherwise and might need in the future.

The solution for this depletion is the restoration of benefits feature in your long-term care insurance policy. Restoration of benefits provides you the opportunity to have your lifetime benefit amount restored to its original amount after you’ve recovered from your illness and gone a period of time (180 days with most companies) without receiving any more benefits from your policy.  

Some companies will restore your benefit for the life of the policy, which is extremely valuable considering there’s always the chance you’ll need care multiple times for different illnesses.

How Do Benefits Get Restored in a Long-Term Care Insurance Policy?

Your total lifetime benefit amount gets restored to its original amount if you go 180 days without using benefits.

Many companies also have other provisions related to the restoration of benefits:

  • You must have recovered from your former claim condition.
  • You must have been care-free during the 180 days.
  • You must have not been receiving services during this restoration period.

It’s not uncommon for these provisions to vary from one insurer to another.

Some long-term care insurance policyholders have mistakenly believed that as long as they didn’t submit any claims, even though they were still receiving treatment, that their benefits would be restored. 

Others have been mistaken in thinking that care provided by a family member doesn’t count as receiving care. Often, medical records will indicate that the policyholder was receiving family care.

Some insurers will be proactive by following up with people who filed claims to confirm that services are still being provided and that the claim should remain open. This helps avoid an expensive surprise 180 days down the road to someone who was holding off on submitting claims.

Restoration of benefits has been compared to a savings account that goes without any withdrawals for 180 days and then is restored to its highest average daily balance. 

What If Your Policy Doesn’t Restore Your Benefits? 

If your policy doesn’t restore your benefits, you may have to ultimately pay for long-term care services out of pocket or through Medicaid.

For example, if your long-term care insurance policy has a lifetime limit of $250,000 and you file claims totaling $300,000, you will be responsible for paying the remaining $50,000.

Options you have to pay for out-of-pocket costs include:

  • Bank accounts
  • Brokerage accounts
  • Retirement plans 
  • Medicaid

Medicaid can be particularly tricky. With Medicaid, you must “spend down” your assets until you have almost nothing left. You may then have to stay in a Medicaid-approved facility, which may not provide the environment or quality of care to which you were accustomed.

This is why it’s a wise idea to get lifetime benefits as high as you can afford when you take out your long-term care policy. Considering that the average cost of a nursing home exceeds $90,000 per year for a semi-private room, the higher the benefit amount, the better.

What Types of Long-Term Care Insurance Policies Offer Restoration of Benefits?

The availability of restoration of benefits will vary from insurer to insurer. Many highly rated insurance companies offer the benefit, including:

  • New York Life
  • Mutual of Omaha
  • Northwestern Mutual Life
  • Transamerica
  • MassMutual
  • Nationwide

An insurance broker representing many different health insurance and life insurance companies is a great place to start. They can find out your needs and wants and match those with the best company and policy. 

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How to Find a Good Long-Term Care Insurance Policy That Offers Restoration of Benefits

Finding a good long-term care insurance policy that offers restoration of benefits won’t be as easy as finding a good life insurance company with a long-term care insurance rider. 

The number of insurance companies offering long-term care insurance has steadily declined over the past twenty years. This is because insurers discovered that the average claim was so high that they weren’t charging people as much as they needed to for coverage. As a result, that product line was either their least profitable, or they weren’t making any profit from selling long-term care insurance.

Some insurers discontinued selling the product, and others raised their rates, and continue to do so, as the cost of long-term care has continued to climb. Moreover, as baby boomers continue to age in such vast numbers, good long-term care insurance looks like it will be harder to find than it is now and cost much more.

If you’re looking for a good company and would like to find one that offers a long-term care insurance policy offering restoration of benefits, here are three recommendations to put you on the right path:

1. Take the time to understand long-term care insurance 

There are several different policy types, benefit lengths and amounts, and features that you’ll need to evaluate. You’ll need to factor those in as you compare features one of which is the restoration of benefits. 

As you make your decision, talk through your financial situation and goals with your family. Tell them the type of care you’d like to receive and get their input on the most realistic and reasonable ways to plan for it.

2. Decide if you want traditional or hybrid coverage

There are two types of coverage to choose fromtraditional and hybrid. But they’re easy to distinguish from each other.

A traditional long-term care insurance policy offers only long-term care insurance coverage, much as your automobile insurance policy doesn’t cover your home, too. Premiums can be increased at the discretion of the insurance company.

A hybrid policy is a life insurance policy and a long-term care insurance policy combined. Hybrid policies are typically paid on for a limited time, like paying the whole premium upfront or over ten years. This is done so you won’t need to worry about having enough income to pay your premiums 20 or 30 years from now.

Premiums on hybrid policies are guaranteed never to increase, and your family can still receive some or all of the life insurance policy’s death benefit, regardless of whether or not you used the long-term care insurance portion of the policy. 

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3. Buy your policy at the right time

Insurance agents will tell you that the right time to buy any insurance is when you’re young and healthy. That’s true for most types of insurance policies, but not necessarily for long-term care insurance.

Most financial planners will tell you that you’re too young to buy long-term care coverage in your 30s because of the number of years you’ll be paying premiums, even though the monthly premium will be much lower than when you’re in your later years. They’ll tell you that the best time to buy coverage is when you’re in your 40s or 50s because the premiums are still attractive, and you’re more likely to be approved for coverage because of your lack of health issues.

Look at the Big Picture

Before you sign on the dotted line for your new policy, make sure you’re not just buying it because it has the lowest premiums. Be sure the coverage fits your goals and has restoration of benefits as a policy feature or available rider. Buying because of low premiums alone can lead to you not getting the best coverage for your situation.


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