4 Costly Long-Term Care Insurance Mistakes to Avoid

Long-term care insurance (LTCi) was supposed to be the answer—an insurance solution to protect retirees and their families from the crushing costs of extended care. But as policyholders are now discovering, it’s not that simple. Too many people make critical mistakes with their LTC policies—mistakes that can cost tens, if not hundreds, of thousands of dollars.

This article explores the most common long-term care insurance mistakes and how to avoid them. Along the way, we’ll unpack the reasons premiums have exploded and explain how to determine if you’re better off self-insuring. If you own a traditional LTC policy or are considering one, this guide is for you.

Mistake #1: Misunderstanding Benefit Triggers

The #1 mistake? People assume their policy will automatically pay out when they move into assisted living. Unfortunately, that’s not how LTCi works.

Most traditional policies require that the insured person needs help with at least two out of six Activities of Daily Living (ADLs)—such as bathing, dressing, or eating—or demonstrate a cognitive impairment. Even if you’re paying $10,000 a month for care, if you don’t meet these specific conditions, your claim may be denied.

Too many people find this out the hard way—after they’ve already committed to a costly facility. Always review your benefit trigger language carefully and make sure any care arrangement aligns with the policy’s requirements.

Mistake #2: Letting Your Policy Lapse Without a Strategic Review

Another common—and often irreversible—error is letting a policy lapse when premiums increase. It’s understandable: you open a letter, see your monthly premium doubled or tripled, and wonder if it’s still worth it.

But before walking away, do the math. In many cases, even after a hefty premium hike, your policy may still offer tremendous value. Often, you have options:

• Reduce benefits instead of canceling the policy outright.
• Adjust inflation protection to reduce the premium.
• Activate non-forfeiture provisions, which let you retain a limited, paid-up benefit rather than walk away with nothing.

Even better, consult a professional before you make a decision. In rare cases, we’ve been able to dispute policy language and reverse benefit reductions or prevent unjustified premium increases.

Mistake #3: Ignoring Policy Buyout Offers

Some insurers are now offering lump-sum buyouts to policyholders in exchange for surrendering their coverage. While this may sound appealing—especially if you’re frustrated with rising premiums—it’s not always the right move.

The buyout might make sense if the policy no longer fits within your financial plan, or if you’re confident you won’t need long-term care. But in many cases, the cash offer is far less than the value of the benefits you’re giving up.

Never accept a buyout offer without a full financial plan review. A professional can help you weigh the short-term cash against the long-term security the policy provides.

Mistake #4: Not Knowing Your Policy’s Basic Components

Even before a crisis hits, many policyholders don’t fully understand how their coverage works. If you’re paying into a policy for decades, you should at least know what it offers:

• Benefit Amount: How much your policy pays per day or month.
• Benefit Period: How long those payments last (typically 2–5 years).
• Elimination Period: How long you must pay out of pocket before benefits begin (usually 30–90 days).
• Inflation Protection: Whether your benefits increase each year to keep pace with care costs.
• Benefit Triggers: What conditions must be met to receive payouts.

Each of these elements affects both the premium and the policy’s usefulness in a real-world care scenario. If you don’t know these details, now’s the time to find out.

Why Did Premiums Get So Expensive in the First Place?

Understanding the root of these problems helps make sense of today’s LTCi landscape. Most policies were initially underpriced. Insurers expected higher lapse rates and shorter claim durations. Instead, policyholders kept their policies longer than expected and made more claims for longer periods—especially as longevity and conditions like Alzheimer’s rose.

Add to that the impact of persistently low interest rates, which eroded insurers’ investment returns, and the skyrocketing costs of care itself—and you’ve got the perfect storm. Regulators began approving steep premium increases to keep insurers solvent. Many providers exited the market entirely, leaving fewer companies to shoulder higher risk.

Are You Better Off Self-Insuring?

Depending on your financial situation, you might not need insurance at all. If you’re considering dropping your policy—or wondering if you need one in the first place—here’s how to evaluate whether you’re self-insured:

• Do you have $2 million+ in liquid assets? If so, you might afford future care out of pocket.
• Do you have strong income streams (e.g., pensions, rental income)? These can help offset care expenses.
• Would paying for care jeopardize a spouse’s financial security or your legacy goals? If so, keeping or buying LTC insurance may be smarter.

Financial planners often run stress tests—simulating a worst-case LTC scenario over several years—to see how it affects your retirement plan. If the plan still holds up, you might be in good shape to self-insure.

Final Takeaway: Don’t Let LTC Mistakes Derail Your Retirement

LTC insurance isn’t simple. It’s expensive, nuanced, and often misunderstood. But when used properly, it can be an essential component of protecting your retirement.

Whether you already have a policy or are exploring your options, don’t make these mistakes:

• Don’t assume your policy will pay automatically.
• Don’t let it lapse without understanding your options.
• Don’t ignore a buyout offer—or accept it—without a full review.
• Don’t remain in the dark about how your policy actually works.

Long-term care is too big of a financial risk to leave to chance. Make sure your plan is proactive, informed, and aligned with your long-term goals.