The Importance of "Restoration of Benefits" in Long-term Care Insurance

Long-term care insurance policies are not standardized like Medicare supplement insurance policies; insurance companies sell policies that combine benefits and coverage in different ways. There are a number of optional features you can choose from, including one called "restoration of benefits."

Here’s how it generally works. For example, let's assume that you have a fall, break a hip and are not able to care for yourself for 6 months. Assuming your policy offers coverage for in-home care, you'll get benefits from your policy which might pay for someone to come to your home daily to food shop, clean, and take care of routine household chores. If you had a policy that offered 3 years of total benefits, you have now used up 6 months and have 2.5 years remaining on your policy.

With a restoration of benefits feature, however, if you don't receive long-term care services again for a stated period (e.g., 6 months in some cases), your benefit goes back to where it was when you first bought the policy. You now have the entire 3 years of coverage available to you again. Here’s another way to look at this benefit financially.

You buy a policy that will pay a maximum of $100,000 in benefits. You become ill, and use $10,000 of those benefits, so you have only $90,000 left. But then you recover, and you don't use any more of the benefits for a number of years. With a restoration of benefits feature, after a period of time (specified by the insurance company in advance), your maximum benefit would return to $100,000.

In many cases, this coverage is desirable because it gives you a way to keep the maximum benefit even after your policy has paid you some benefits. But there's typically a fee for this option, although some companies include it as a standard policy feature.

This is just one optional policy feature you can choose from. Others include, just as a sampling, a waiver of premium (which allows you to stop paying the premium once the insurance company has started to pay you benefits); premium refund at death (which, after your death, pays your estate any premiums you paid minus any benefits the company paid); and benefit downgrades (which lets policyholders change the policy if they have trouble paying the premium). Each type of coverage, however, can be complicated to understand and can add to the cost of your policy. These coverage's are also subject to the claims-paying ability of the issuing company. Therefore, it’s a good idea to get a professional analysis before purchasing a policy.