Long-Term Care Insurance: Should You Buy It And When?


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Special Report: Race To Retirement

People are living longer, thanks to advances in medicine and healthier living habits. The bad news: At some point age will take its toll.

More than two-thirds of individuals turning 65 will eventually need assistance for such daily, basic activities as bathing and dressing, studies say.

Medicare and private health insurance don't usually pay for these services.

"Medicare pays very little long-term care and only for short periods of time, typically about 20 days," said Jesse Slome, executive director of the American Association for Long-Term Care Insurance.

Most government and private insurance payments go toward medical expenses that help improve your health outcome, typically after a hospital stay.

If insurance won't pay, who will? Relatives often step up to the plate. But that can be taxing on them.

Big Bills

You can pay for help yourself. That can be expensive, especially if care drags on for years in retirement . Homecare typically costs around $30,000 a year and nursing homes $84,000 a year for a semi-private room.

If you've exhausted all your resources, Medicaid will cover nursing-home costs. That's not usually an option for people with means.

Another option: Buy long-term care insurance. Almost all policies allow benefits to be used in various settings, including at home, an assisted living facility or nursing home. Many policies also cover some homemaker services such as meals or housekeeping, as long as they're in conjunction with personal-care services.

Premiums are based on your age when you apply, and don't usually go up because of age. Even more important is your health. You have to be relatively healthy to qualify.

"Not everybody can get long-term care insurance," Slome said. "The older you are, the more likely you will have health conditions that will preclude you from qualifying."

He says the "sweet spot" for applying is between 55 and 65.

How much coverage should you get? "Most people think it's an all-or-nothing proposition. But there are enormous options and flexibility to customize insurance protection to meet every conceivable situation," said Slome, who advises to shop around.

Slome suggests contacting an insurance agent who knows the ropes: a specialist who has written at least 100 long-term care policies and is "appointed" with four to six insurance companies. (For agents in your area, contact aaltci.org.)

Fewer Choices

Many insurers have exited the business the last few years due to profit pressures. The top-five policy writers accounted for 76% of the market in 2012, according to Limra Insurance Research. The top five:Genworth Financial ( GNW ), John Hancock, Mutual of Omaha, Northwestern LTC and Transamerica LTC.

If money is an issue, Slome advises to buy at least some coverage to defray costs. Individual policies for women, who live longer than men, may cost 20% to 40% more than for men, Slome says. But for couples, "it works out the same." Most policies are bought by couples.

According to AALTCI's 2014 National Long-Term Care Insurance Price Index, the premium for a "good," or basic, policy for a couple in standard health costs $1,795 a year at age 55. The same policy goes up to $1,980 at 60 and $3,620 at 65.

With that policy, each spouse would receive up to $164,000 in benefits starting at age 60, if needed. "Better" and "best" protection would cost more, but benefits would increase with age.

For example, the "best" coverage would cost $3,840 for a couple applying at 60, but the value of protection would increase from $164,000 each at 60 to $650,000 at 80 and $730,000 at 85.

Most long-term care policies are stand-alone products and tax qualified, meaning premiums enjoy some tax benefits, mostly after retirement.

Tax-qualified coverage applies to individuals who are unable to perform at least two of six basic functions: bathing, transferring, eating, dressing, continence and toileting.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Mutual Funds

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