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Long term care insurance sales

What to consider before buying a policy

If you buy long term care insurance when you're 40, you might be wasting your money, according to Weiss Ratings Inc., an independent provider of insurance company ratings and analysis.

Weiss recommends waiting until at least age 60 before buying a long term care policy. If you purchase the insurance earlier, you could end up paying many years of premiums on a plan that could be obsolete by the time you need it, according to Weiss, which studied premium quotes offered by 30 long-term care insurers.

At the same time, Weiss says you should not wait too long after turning 60 to buy. The premium costs surge as you get older, particularly if you have a pre-existing condition. On average, you would pay $1,169 annually for a comprehensive policy at age 60. At 65, your rate would jump by 46 percent, to $1,704 a year, according to Weiss.

You also should consider the cost of inflation. If the current rates continue, the average cost of nursing home care is expected to rise from $42,000 a year in 2000 to $80,000 in 2010.

To counter the cost of inflation, consider purchasing a long term care policy with an optional "inflation protection feature." Typically, the insurance company will add an extra 5 percent to your daily benefit, compounded annually. For example, if the policy provides a $100 daily benefit now, it would rise to $163 in 10 years, according to Weiss.

Consider buying the inflation rider if you don't expect you will need the benefits for at least 10 years, Weiss says, warning that the feature doesn't come cheap. Shop around for the best price.

And finally, take advantage of spousal discounts whenever possible. Insurers will provide a substantial discount if you buy long term care for a spouse or significant other when you buy your own policy.

Millions of Americans inching closer to retirement are buying long-term care insurance policies to brace for potentially devasting health care costs, with the numbers increasing more than tenfold in the past fifteen years, according to a new report from the Health Insurance Association of America (HIAA). The total number of long-term care policies sold has jumped from about 815,000 in 1987 to a staggering 8.3 million in 2001, HIAA said.

"Given the significant enhancements to long-term care insurance policy design, the stability of premium rates over the last couple of years means buyers today clearly receive a better value for their insurance dollar than before," Donald Young, MD, president of HIAA said.

There is a "veritable tidal wave" of baby boomers approaching retirement, with the government estimating that people at age 65 have a 40 percent chance on average of requiring nursing home care, the HIAA said.

HIAA, a trade association representing the private health care system, surveyed companies that sell private, long-term care insurance. According to the report, Long-Term Care Insurance in 2000-2001, more than 1.4 million people purchased long term care insurance just in the years 2000 and 2001.

The study also found:

• Roughly 70 percent of all long-term care policies sold remain in effect

• The number of employers providing long-term care coverage availability to their employers has grown to 4,700.

• The employer-sponsored market grew to a massive 1.3 million total policies in 2001.

The growing awareness that the government will not pay for long-term care is driving more people to buy policies. At the same time, Congress is considering offering long-term care as a benefit for federal employees and their dependents, and for military personnel. Legislators also are mulling legislation that would provide tax breaks to help people pay for long-term care policies.

"Price differences have averaged out"

Consumers buying the policies can be charged dramatically different premiums for different policies, however the average price overall has remained about constant for the past two years, and has actually dropped in some cases, HIAA said. A basic policy purchased in 2001 at age 65 cost $966 a year, compared to $1,002 in 1999, HIAA said.

"Long-term care insurance protects the financial security of American families today in the event that a loved one needs help handling day-to-day activities," said Young, "and it also provides a way of assisting states with the burden of rising Medicaid costs in the future."

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