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Who Should Buy Long-Term Care Insurance?

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Long-Term Care Insurance

It's a decision many baby boomers are grappling with: Should I buy long-term-care insurance?

National statistics show that about 70 percent of Americans 65 and older will need some kind of long-term care at some point.

Long-term care – which encompasses in-home care, assisted living facilities and nursing home care – is very expensive and is not covered by Medicare or private health insurance. Average costs for nursing home care today in Oklahoma is around $57,000 per year, while assisted living averages $37,000/year.

But long-term care insurance is pricy too. Depending on your age, health, and the provisions of the policy, premium costs can range anywhere from $1,000 up to $5,000 a year for an individual policy.

Should You Buy a Policy?

According to a recent study at the Boston College Center for Retirement Research most Americans don't need to purchase a policy. In fact, they recommend that only 19 percent of men and 31 percent of women should actually get one.

Why? The reasons stem from a range of factors, including the fact that relatively few people have enough wealth to protect to make purchasing a policy worthwhile. Seniors with limited financial resources who need long-term care turn to Medicaid to pick up the tab after they run out of money.

Another important factor is that most seniors who need long-term care only need it for a short period of time – for example, when they're recovering from surgery. For those people, Medicare covers in-home health care and nursing home stays of 100 days or less following a hospital stay of more than 3 consecutive days.

So who should consider buying a policy?

Long-term care insurance policies make the most sense for people who can afford the monthly premiums, and who have assets of at least $150,000 or more that they want to protect – not counting their home and vehicles.

Another factor to weigh is your personal health and family health history. The two most common reasons seniors need extended long-term care is because of dementia and/or disability. And, almost half of all people who live in nursing homes are 85 years or older. So, what's your family history for Alzheimer's, stroke or some other disabling health condition, and do you have a family history of longevity?

You also need to factor in gender too. Because women live and average of 5 years longer than men, they are at greater risk of needing extended long-term care.

LTC Policy Shopping Tips

After evaluating your situation, if you're leaning towards buying a long-term care policy, be sure to do your homework. There are various cost-cutting strategies that can help you save and still get adequate coverage, including:

Buy young: The most basic way to get long-term care insurance at a cheaper rate is by purchasing it at a younger age. For example, a typical policy that costs a 55-year-old $1,500 a year in premiums could costs a 65-year-old $3,000. Health is another fact that can affect costs. While good health can lower your monthly payments, having a preexisting medical condition can increase your costs, or you may not be able to get insurance at all.

Sign up as a pair: Many insurers offer 20 to 30 percent discounts on premiums if you sign-up at the same time as your spouse, partner or sibling.

Choose a shorter benefit period: Most people need long-term care for just under three years on average. So, by choosing a policy that covers you for two or three years, versus five or more years, it can cut your premiums by 20 to 40 percent.

Lengthen the time you pay: Most policies have 30 to 90 day waiting periods that require you to pay out-of-pocket for care before the policy kicks in. By choosing a longer wait period, it can lower your premiums 15 to 20 percent.

Lower the daily benefit: You can get a policy that pays out $100, $150, $200 per day or more, but the higher the benefit, the higher your premium. So consider a plan that covers two-thirds the daily cost, and pay the other third out of savings. That could cut your premiums by about one-third.

Buy lower inflation protection: Inflation-coverage protects you from the rising costs of care. Five percent compounded annually has been a common practice in the industry but it's expensive. Consider a policy that has a 3 percent CPI-adjusted inflation protection. This can save you 50 percent or more.

Get state help: Oklahoma offers a long-term care partnership program that can help you save too. Under this program, if you buy a long-term care policy approved by your state Medicaid agency, you can protect an amount of assets from Medicaid equal to the benefits that your policy pays out. With this program, you can choose a shorter benefit period, which will lower your premiums. See okltcpartnership.org to learn more.

Buy a combo policy: If the thought of paying expensive monthly premiums for long-term care insurance – which you may never use – is keeping you from buying a policy, consider one that combines long-term care and life insurance. These policies provide a death benefit for your heirs and a pool of money you can use for long-term care. Any funds you use for care are generally subtracted from the death benefit.

To help you find a policy, get a long-term care insurance specialist who works with a variety of companies. See aaltci.org to locate one. Also shop insurers like Northwestern Mutual and New York Life, who work only with their own agents.
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