Definition
Insurance that pays for extended help with daily activities such as bathing, dressing, and eating, whether delivered at home, in assisted living, or in a nursing home. Policies specify a daily or monthly benefit, a benefit period, and an elimination period you must cover yourself before benefits start. Medicare generally does not pay for this kind of custodial care.
Why it matters
A multi-year care need is one of the few expenses that can consume an entire retirement portfolio, and health insurance does not cover it. Premiums depend heavily on age and health at purchase and can rise later, so the decision is usually made in the 50s or early 60s, well before care is likely.
Example
At 58 a retiree buys a policy paying $200 a day for up to three years after a 90-day elimination period, for an assumed $2,800 a year. At 82 she moves into assisted living costing $6,000 a month; she pays the first $18,000 herself, then the policy pays up to $6,000 a month for as long as 36 months, about $216,000 of coverage that would otherwise have come out of her savings.
Put it into practice
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.