What Happens to Unused Long-Term Care Insurance?

Have you ever wondered what happens to unused long-term care insurance or what happens if you never end up using it? As humans, we’re natural planners, always trying to think ahead. So when a plan doesn’t quite work out as we had hoped, it can leave us feeling perplexed.


If you've purchased long-term care insurance (LTCI) but find that you may not need it because you have remained healthy, here are some answers to the questions you probably have about your options.

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A Recap on Long-Term Care Insurance

Before we dive into answering the question of what happens to unused long-term care insurance, it’s helpful to ensure you know exactly what long-term care insurance is.


Long-term care insurance is a type of policy designed to cover medical expenses accrued over long periods. With this type of insurance, you’re able to receive long-term medical care without having to use your savings or investments.


Is this important if you already have “regular” health insurance or even Medicare or Medicaid? You bet. Covering long-term care costs is one of the most important reasons people opt for long-term insurance.


Currently, the median cost of a semi-private nursing home room is just over $93,000 per year. That's quite a large expense. The best way to prepare for that is to take out a LTCI policy.


In this sense, long-term care insurance can help you manage both planned and unplanned long-term care expenses. Plus, long-term policies typically have lifetime coverage limits, but you can customize them to suit your needs. They may also cover things like:

  • Home health services
  • Assisted living facilities
  • Nursing homes
  • Personal care services
  • Meal preparation

The bottom line? With long-term care insurance in place, you can financially protect yourself and your loved ones.

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Can You Cash Out Long-Term Care Insurance?

Long-term care insurance can be a useful investment for those planning for their future health expenses. What happens to unused long-term care insurance? Can you cash out on long-term care insurance if you never use it?


The short answer is it depends.


If you purchase a traditional long-term care insurance policy, most of the time the money you spent will stay with the carrier if you never need long-term care.


However, there are features like a Return of Premium rider that can be added to a long-term care policy, so that you can get a refund of what you paid should you never require care.


There are also LTC policies with life insurance components that create more flexibility regarding access to any cash built up in the policy over time. It’s important to understand that if you do have a policy that allows you to cashing out, it will reduce the overall financial benefits of the policy and could also reduce or eliminate possible tax advantages associated with it.

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How Does Long-Term Care Return of Premium Work?

First, it’s important to understand what “return of premium” means in this context.


A return of premium is a special feature that can be added onto some insurance policies that will allow the policyholders to get back all or part of their premiums they have paid over the years. Depending on the type of policy, the return of premium benefits will be available after the policy has been active for a certain number of years.


The purpose of this type of policy is to provide peace of mind knowing your money isn’t going to waste and will be returned if you end up not needing long-term care services.


How a return of premium rider works within a policy ultimately depends on your insurance provider and the type of policy you have purchased. Traditional long-term life insurance policies typically do not have a return of premium feature built within its policy. It's an add-on that comes at an extra cost.

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What Are Shared Spousal Benefits?

What happens if you can’t get a refund for your premium? You can still get incredible value from your long-term care insurance policy by taking advantage of a shared spousal benefits rider.


Shared spousal benefits for long-term care insurance offer families a pool of shared coverage for both spouses. Through a shared-benefit rider, couples can use a longer coverage period than would typically be available.


For example, instead of getting coverage for three years per person, shared benefits may total six years that are shared by both people covered. This means if one spouse uses up two years of the shared benefit pool, the other still has four years available.


Some details differ among insurers. So, it's important to read the terms carefully before making any decisions. It’s also important to ensure that this type of rider makes sense for you.


Overall, this type of benefit can be particularly beneficial when combined with other strategies and resources like Family Caregiver plans, providing couples with the support they need should either one require long-term care in the future.


By taking advantage of shared spousal benefits, you can ensure that your family is better prepared for any potential costs associated with long-term care, regardless of who requires those services first.

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Are There Other Types of Insurance Policies I Can Use?

Long-term care insurance is one way you can protect against the high cost associated with care services. However, there are other types of policies that exist beyond the traditional ones.


There is no one-size-fits-all solution when it comes to long-term care insurance. Researching all types and riders available may help ensure you find the best fit for your situation.


Here are examples of two popular alternative coverage options.


Annuities with Long-Term Care Benefits

An annuity is a contract between you and a life insurance company where you invest your money that will grow tax-deferred and the insurance company is guaranteed to provide income for you down the road. In some annuities have features that can be added on to the contract like a long-term care rider. This rider allow you to receive payments for long-term care services when you need them.


A long-term care annuity is a good option if you are looking for guaranteed retirement income and money for long-term care expenses. It’s also a great alternative for people may not qualify for long-term care insurance due to pre-existing conditions.


A potential downside is having to pay a large lump sum up front to get the annuity started. There could also be taxes you may have to pay once you start receiving funds. It's always a good idea to speak with your tax advisor before making this type of purchase.


Hybrid Policy

Hybrid policies are another alternative to traditional long-term care insurance. They combine life insurance with a long-term care rider. With a hybrid LTC policy, the policy’s death benefit is used to pay toward care services with a maximum amount of funds you can withdraw, leaving the rest for your beneficiaries.


Another benefit is unlike traditional long-term care that have rates that increase over time, with a hybrid LTC policy, your payments are guaranteed to never change.


The downside is the cost. It’s more expensive than a stand alone LTC product because it combines life insurance with long-term care protection into one policy. In addition some hybrid policies require medical underwriting, so your cost and ability to get coverage will depend on your current health status.


This type of policy is a good match for someone who wants a flexible plan with benefits that extend beyond long-term care coverage.

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But, What Happens if You Don't Have Long-Term Care Insurance?

We know that it can be daunting to face the idea of paying for a long-term care policy but never using it. However, this doesn’t mean that you shouldn’t have a long-term care policy or plan in place.


The consequences of not having long-term care insurance can be wide-reaching. Without it, the financial burden often falls on those who are unable to pay for it — individuals and their families.


While the cost of in-home care, assisted living, or a nursing home varies depending on location, it has become increasingly expensive. With no insurance, these costs could add up quickly, causing detrimental financial hardship and undoing a lifetime of savings.


Ultimately, it’s best not to take the risk. If you think you might need long-term care later in life, investing in an insurance policy is a much better option than hoping for the best and facing potential consequences down the line.

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So, What Should I Do?

Deciding when to take out long-term care insurance and what type of coverage you should get can be a difficult choice. Especially since we don’t know what the future holds for us.


It’s hard to imagine being in a position where you might need care that takes place in your home or at an assisted living or nursing home facility.


Having a long-term care plan in place while you are healthier and younger will not only help keep the policy cost down, it will ensure you will have the funds needed to pay for any future costs that come up without having to burden your family or drain your savings.

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Our content is created for educational purposes only. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Everdays encourages individuals to seek advice from their own investment or tax advisor or legal counsel.

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