What Happens to Unused Long-Term Care Insurance?

Long-term care insurance is designed to provide financial support for services like nursing home care, assisted living, or in-home assistance when you can no longer manage daily activities on your own. But what happens to unused long-term care insurance if you never need to file a claim? This is a common concern for policyholders and their families, especially given the significant investment these policies often require over many years. Understanding the fate of unused benefits is crucial when evaluating whether long-term care insurance is right for you. In most traditional policies, if you never use the coverage, the premiums you’ve paid typically do not get refunded, and your beneficiaries do not receive any payout.

A financial advisor can help untangle the costs and benefits of long-term care insurance.

Long-Term Care Insurance Basics

Long-term care insurance helps pay for healthcare costs that aren’t covered by Medicare or conventional health policies. It’s designed to help disabled people and those with chronic health conditions pay for the costs of assistance with activities such as dressing, bathing and eating. It can also cover nursing care but isn’t designed to pay for medical care of the type covered by health insurance, such as doctor visits, lab tests and hospital stays. Long-term care insurance can cover expenses arising from in-home care as well as bills for living in nursing homes and assisted living facilities.

Long-term care can be quite expensive, with monthly median costs ranging from $1,690 for adult day care to $9,034 for a private room in a nursing home, according to long-term care insurance company Genworth. These costs, which aren’t typically covered by Medicare, can quickly drain the nest egg of a retiree without long-term care coverage.

Insurance to pay long-term care costs can be comparatively inexpensive. The average annual premium for a 55-year-old man ranges from $950 to $3,685, depending on the policyholder’s health and the size of the benefit, according to the American Association for Long-Term Care Insurance (AALTCI), an insurance industry organization.

However, half of long-term care insurance policyholders die before ever using their benefits, according to the AALTCI. For the majority who purchase coverage that doesn’t begin paying until 90 days after the covered individual begins needing long-term care, only 35% ever use their benefits, AALTCI found.

Shared Spousal Benefits

One way to get some value from unused long-term care insurance policy benefits is to get a policy with shared spousal benefits. This is a type of traditional long-term care insurance that covers a couple and allows a surviving spouse to take advantage of any unused benefits remaining after the other spouse dies.

If the deceased spouse used all the policy’s benefits before dying, then the surviving spouse would get no benefits from that policy. However, if either spouse uses all the benefits available to them, he or she can then begin using unused benefits from the other spouse’s coverage. One advantage of spousal benefit policies is that the likelihood of the policy’s benefits being used is much higher when two people are covered.

Return of Premium Policies

What Happens to Unused Long-Term Care Insurance?

Policies that provide for a return of premium are also an option to get some benefit from paying for unused long-term care insurance coverage. These policies, which blend long-term care coverage with life insurance that has a death benefit, will pay back some portion of the premiums on an unused policy when the policyholder dies.

These hybrid policies vary significantly in the number of premiums they will return. Some return all the premiums plus an additional death benefit. Others will return only the amount of the premiums minus any claims that have been made under the policy. Still, others offer a graded return that decreases as the policyholder gets older.

Other Long-Term Care Coverage Options

There are other types of policies and investments that you can use to get long-term care benefits. The two most popular options will provide a payout for you if you need long-term care or you will be covered for long-term care in a hybrid policy that goes along with another type of coverage. Let’s take a look at how each of the two most popular alternatives works.

Annuities With Long-Term Care Benefits: Some fixed and indexed annuities can come with contracts that provide you with an extra payout if it is determined that you need long-term care. As soon as it is confirmed that you need long-term care, the annuity starts to pay out a higher monthly benefit that is a multiple of whatever premiums you’ve paid already.
Hybrid Long-Term Care Insurance: You can get a life insurance policy that serves as a hybrid for both life and long-term care insurance. Medical underwriting is typically less rigorous than it is for traditional long-term care insurance. You can even get access to lifetime or unlimited long-term care benefits in this type of policy.

Tips for Estate Planning With Unused Long-Term Care Insurance

Planning for the future often involves making decisions about long-term care and how to protect your assets. If you have a long-term care insurance policy that you haven’t used—or may not need—there are several strategic ways to incorporate it into your estate planning. Understanding your options can help you maximize the value of your policy and ensure your loved ones benefit from your careful planning.

Review your policy’s refund or return-of-premium features: Some long-term care insurance policies offer a return-of-premium rider, which refunds a portion of your premiums to your estate or beneficiaries if you never use the benefits. Check your policy details to see if this feature is included and how it works.
Consider policy conversion or exchange options: Certain insurers allow you to convert unused long-term care insurance into a different type of policy, such as a life insurance policy with a death benefit. This can provide a financial legacy for your heirs if you don’t need long-term care.
Gift or transfer policy benefits: In some cases, you may be able to transfer ownership of your policy to a family member or trust. This can help with Medicaid planning or ensure that the policy benefits are used by someone who may need them.
Coordinate with your estate plan: Work with an estate planning attorney to integrate your long-term care insurance into your overall estate plan. This ensures your wishes are honored and your assets are distributed efficiently.

Unused long-term care insurance doesn’t have to go to waste. By exploring these estate planning tips, you can make the most of your policy and provide additional security for your loved ones. Always consult with a financial advisor or estate planning professional to tailor these strategies to your unique situation.

Bottom Line

Understanding what happens to unused long-term care insurance is essential for anyone considering this important financial product. If you never need long-term care, traditional policies typically do not offer a refund of premiums, meaning your payments are not returned to you or your heirs. However, some insurers now offer hybrid policies that combine life insurance or annuities with long-term care benefits. With these, if you don’t use the long-term care portion, your beneficiaries may receive a death benefit or a return of premium, providing added peace of mind.

Tips for Long-Term Care Insurance

A financial advisor can help you weigh the costs and benefits of the different types of long-term care insurance, including ways to benefit from a policy that is never used. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Be sure to use the free SmartAsset retirement calculator to get a quick estimate of how you’re preparing for retirement.