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Long-term care insurance

Long-term care insurance helps you protect your assets and maintain your financial security should you need long-term care later in life. While no one likes to think about the escalating costs of nursing homes and other elder care expenses, planning now can provide you and your family peace of mind now and in the future.

Studies indicate that as many as 40 percent of Americans over 65 will spend time in a long-term care facility, that more than 70 percent over 65 will use some form of home health care, and that a year in a nursing home can cost anywhere from $40,000 to $100,000 or more today, with costs likely to more than quadruple 30 years from now. Considering these factors, long-term care insurance may be the most important purchase you ever make.

Unfortunately, long-term care insurance policies are complex, and seemingly minor details can make a tremendous difference in the level of care you eventually receive. You'll need to sample a variety of policies, ask lots of questions and have your broker or agent explain the intricacies of the policy in detail because what may seem minor now could mean the difference between being covered or not at a crucial time. The following 12 questions will help unravel the complexities and gather the information hou need in shopping for a long-term care policy, including whether you should be shopping for one at all.

Why buy long-term care insurance?
There are many elderly people who, due to some physical or cognitive disease, are unable to care for themselves. Long-term care insurance could potentially cover nursing homes, assisted living facilities, adult day care, in-home care and other functions that help us get through everyday life. It is NOT medical insurance; it is simply for everyday life functions and living.

It is also not, however, just for the elderly. If a person in his 30s were to purchase long-term care insurance, and soon after become paralyzed in an accident, or be diagnosed with a degenerative disease, he could then be covered for life, depending on the individual policy.

What happens if I get sick and don't have this insurance?
If a person is in need of, let's say, a nursing home, and is without insurance, the home would need to be paid for out of the person's assets. Government assistance (Medicaid) would usually not kick in until not only that person's assets were virtually depleted, but the assets of their spouse as well, if that assistance were available at all. Therefore, anyone with assets to protect may want to consider this insurance. Typically, if you each have more than $100,000 in assets, not including your home or car, and you or your spouse are 60 or older, purchase long-term-care coverage.

At what age should long-term care insurance be purchased?
It is sometimes advised that people 60 and over should be looking at this insurance. It isn't really a question of when you will probably need this coverage, but the fact that the insurance is substantially cheaper when you are younger, although that also means you are paying the premiums longer. At age 50, you'll pay less in premiums than at 60. By the time you need the coverage, say at age 80, you will have paid roughly the same amount in premiums, but buying early protected you from the risk for an additional 10 years at no extra cost.

Generally, both spouses should be covered, not just one, so that a nursing-home stay by one without a policy won't deplete assets needed by theother.

There are a few reasons to think about purchasing this coverage as early as possible, but for most people it just won't be economically feasible.

Reason one is that, as stated above, a life-changing occurrence can occur at any age. If you are left paralyzed at 30, you could conceivably need life assistance of some sort for the next 60 years. If you're covered, you could be set. If not, it's too late.

But the second and less-obvious reason is that purchasing the policy at a younger age may cost less overall than purchasing it when older, even accounting for inflation. If you're shopping for this policy at a younger age, ask your financial adviser to compare your purchase now with a purchase at 60. You may find the numbers work more favorably if you purchase now.

One final note. If you expect your assets to generate enough income to cover nursing-home expenses, you may want to skip this coverage.

Where should I shop?
Once you make the decision to purchase long-term care insurance, you need to go shopping. While there are several big insurance companies that offer the insurance, you should also consider working with an independent broker that is not bound to one company.

How expensive is long term care insurance?
Of course, this number can vary wildly depending on numerous factors, age being the most important. For people in their 30's, the insurance may cost in the $400-per-year range, while that can increase closer to $1,000 per year for those in their 50's and 60's.

What type of coverage does the policy provide?
While the wording may differ per policy, there are three basic categories into which care may fall: home settings, assisted living and skilled nursing facility. The ideal policy will cover all three, since you never know which you'll need. You could wind up with a condition that could be cared for at home, but if your policy covers only nursing home care, you may be out of luck, or maybe prematurely forced into a nursing home.

Conversely, if you're only covered for home and assisted living care, you're out of luck if your condition worsens to the point where you need the full-time skilled care only a home can provide.

How long will the policy pay out once it's triggered?
The best is an unlimited payout, but there are policies that cover smaller increments of time, such as four years or six years. You'll need to weigh what you can afford against how much you're willing to gamble you'll need. Obviously, the longer coverage is provided, the better.

What triggers the policy?
Different policies dictate different reasons for the policy to kick in, such as cognitive impairment, failure of ability to perform daily activities, and medical impairment. But not all policies allow for all reasons, and some policies even refuse to consider medical necessity as a trigger. Make sure you understand the policy's trigger, and try to find one that will include medical necessity.

Also, certain policies require you to be hospitalized before any nursing home or home health care benefits kick in. Try to find a policy without this restriction.

How much will it pay out every day?
Some policies may cover expenses totaling more than $50 or $75 per day, and others may cover $200 and up. All are different. Make sure you fully understand the payout policy on any coverage you're considering. In doing so, take into account the difference in potential nursing home costs where you are. For example, the cost of a nursing home in New York may run $300 to $400 per day, while a home in the Midwest may be less than $100.

What is the deductible?
This part gets especially complex. These policies can measure the deductible not in dollars, but in days. A policy's deductible may run 30 days, 60 or 120. And, the length may mean different things, depending on the policy's wording. The days may be consecutive, or not. The deductible that's right for you will depend on your ability to cover your own costs until the policy kicks in.

Be sure you fully understand the implications of the deductible before signing on, and weigh it against your projected assets at age 70 or 80. This is one topic you should definitely discuss with your financial adviser.

Does the policy have inflation protection?
Many policies include a clause that increases your benefit with inflation, without raising your premium. Be sure to ask about it.

Does the policy allow for shared care?
Some policies allow you to link your policy with your spouse's, so that if your coverage runs out, you can draw on your spouse's coverage. Discuss with your spouse if this is something you want to have.

Make sure you fully understand every aspect of a policy before signing on, as any detail could make a big difference come redemption time.

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