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Long term care insurance (LTC)

Long-term Care Insurance

As life expectancies increase, so does the possibility that you'll require home health care, or face a costly stay in rehab or a nursing home — or that your parents will. With home health aides costing more than $32 an hour and nursing homes charging nearly $66,000 a year for a semi-private room (Genworth Financial, 2007), both seniors and baby boomers are worried about paying for long-term care. Medicare, Medigap, and most private health insurance policies don't cover these expenses. If you can't handle the cost for three to four years, or if it would wipe out assets that your spouse would need or that you'd hoped to leave to your heirs, you may want to consider long-term care (LTC) insurance.

Should you buy now, or wait till later?

A good question. There are arguments for both strategies:

Buy now:

  • If you buy long-term care insurance when you're younger (between 55 and 65), you'll lock in lower rates, and will be less likely to have a medical condition that could disqualify you or significantly raise the price tag.
  • You may think that waiting until you're older will save you money, but that's not necessarily so. If you start early, your premium may be so much lower that even after many more years of paying, you’d still come out ahead.

Wait:

  • Long-term care insurance is changing all the time, especially now that so many boomers are hitting their 60s. Policy benefits may improve as time goes by (although premiums might also increase).
  • A policy you buy at age 55 could be obsolete when you turn 85. And even then, you may not need the type of care the policy would cover.

Bottom line? If you won't be affluent enough to pay your own long-term care bills, but don't think you'll qualify for Medicaid, you could well be a candidate for LTC insurance. Buy very carefully, though — ideally, by consulting an adviser with special experience in understanding this complex product.

What to look for in an LTC policy

If you decide to invest the $500 to $5,000 a year that an LTC policy will cost, here's what you'll want:

  • A daily benefit that's in line with the average daily nursing home cost in your state (or where you expect to retire), including medications and extras you're likely to need.
  • An annual inflation rider, preferably one that increases the benefits by 5%, compounded annually.
  • A coverage period of at least four years. (The average nursing home stay is 2½ years, though that may change in the future as medical care improves.)
  • Liberal benefit "triggers," so the checks start rolling in when you're unable to perform two out of six "daily living activities" (for example, bathing and dressing), or when you show evidence of Alzheimer's or another chronic disease.
  • Coverage for assisted living facilities and home health care, as well as for the more traditional custodial, skilled and intermediate nursing homes.
  • A policy that's guaranteed renewable for life, with the premiums waived if you do become institutionalized.
  • A "qualified" policy, one that makes it possible for you to take tax deductions for the premiums.

Go for a financially stable company

Be sure to check the rating of an insurance company before you sign up. You want one that's been in this business for a number of years, and has earned high scores from the following three free rating services:

 

Note: An "A" rating from one rating service may mean "Good," while at another service, it may mean "Excellent." Be sure you know what each of the services' ratings mean.

 

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