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The basics of long-term care insurance

Should you buy long-term care insurance?
You should not buy long-term care insurance if:
  • You can't afford the premiums.
  • You have limited assets.
  • Your only source of income is a Social Security benefit or Supplemental Security Income (SSI).
  • You often have trouble paying for basic needs, such as food, medicine, housing or utilities.
You should consider buying long-term care insurance if:
  • You have significant assets and income.
  • You want to protect some of your assets and income.
  • You want to pay for your own care.
  • You want to remain independent.
Source: "A Shopper's Guide to Long-Term Care Insurance," 2009, by the National Association of Insurance Commissioners

By 2030, over 72 million Americans will be over age 65, according to a 2011 report by the U.S. Department of Health and Human Services. The reality is that a 95-year-old baby boomer without long-term care insurance may have to rely on a 90-year-old spouse or a 70-year-old son or daughter for personal care.

Consumers can't rely on Medicare, Medicare supplementary insurance, or health insurance to help them meet long-term care costs. Those plans don't cover most long-term care expenses.

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When to buy a long-term care policy

When buying long-term care insurance, your age is a primary factor in determining its cost. The younger you are when you get the policy, the cheaper your premiums will be. Of course, you also will be paying those premiums for a longer period of time before taking any benefits.

According to the "Guide to Long-Term Care Insurance" by America's Health Insurance Plans, a policy that cost a national average of $2,261 annually in 2010 for buyers age 55-64 would have cost $2,781 for buyers age 65-69 and $3,421 for buyers age 70-74. The average cost for buyers 75 and older was $4,123.

You may decide to purchase a long-term care (LTC) policy before age 50 if your employer sponsors an attractive long-term care group plan at an affordable price.

Activities of daily living
The inability to perform a certain number of "activities of daily living," or ADLs, is the most common way insurance companies decide when you're eligible for long-term care benefits. Typically, a policy pays benefits when you can't do two or three of them. The most commonly used ADLs are:
  • bathing
  • continence
  • dressing
  • eating
  • toileting (moving on and off the toilet)
  • transferring (getting in and out of bed)
Source: "A Shopper's Guide to Long-Term Care Insurance," 2009, by the National Association of Insurance Commissioners

Most insurers won't sell you long-term care insurance if you're over 85 or if you have a pre-existing medical condition such as heart disease or diabetes. A reputable insurer only sells long-term care policies to reasonably healthy people who are at low risk of needing their benefits in the near future. So beware of policies and premiums that sound too good to be true.

Important policy features

The most crucial factor when choosing a long-term care policy should be its benefit triggers: the set of conditions that must exist before you begin receiving coverage. All policies must contain eligibility requirements, described at left.

Bathing is one of several activities of daily living (ADLs), which are the most commonly used benefit triggers. Your benefits begin when you are no longer able to perform a certain number of ADLs without assistance.

A good long-term care policy also will cover all levels of care — including custodial or personal care — in a variety of settings. Those settings include:

  • Adult day care: Sites that provide personal and skilled care, and recreational services.
  • Assisted living facilities: Living quarters which provide individualized personal care and health services for people who need help with personal care.
  • Facility care services: Licensed agencies that provide skilled nursing care, speech, physical, or occupational therapy, or help from health aides.
  • Nursing facilities: Residential sites for people who need daily medical care. Many nursing home stays are for a short rehabilitative period after an acute illness or injury such as a hip fracture.

Make sure you know exactly what types of services and facilities are covered by your long-term care policy. If you don't go to the right kind of facility, your insurance company can refuse to pay for your care.

You also should investigate whether your policy has a nonforfeiture benefit, which is additional long-term care coverage you can buy that protects some of your policy's value if you drop your policy or let it lapse. While this benefit offers some protection for your investment, it will raise your premiums. If you are confident you will be able to pay your premiums, even if there are future rate hikes, you can lower your costs by passing up this option.

Waiver of premium is another important feature in a LTC policy. This provision lets you stop paying premiums during the time you are receiving benefits. Read your policy carefully to see whether there are any restrictions on this feature, such as a requirement to receive benefits a period of time (60 to 90 days is standard) before your premiums are waived.

Most long-term care policies sold today must be guaranteed renewable, which means the insurer guarantees you the chance to renew your policy. It doesn't mean the insurer guarantees you a fixed premium. Note: Your premium will probably increase over time. While you can't be singled out for a rate increase — no matter how many claims you file — you should know that state regulators routinely grant increases to insurance companies to cover whole classes of policies that experience a large number of expensive claims.

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