Long-term care insurance isn’t for everyone.
A major consideration for choosing long term care insurance is the protection of assets. And due to rising costs of long term care, even a sizable nest egg can be depleted quickly.
So it is essential to weigh the risks and benefits of choosing a plan before buying a policy.
The rising costs of long term care
Cornerstone Wealth Management reports that long-term care can be $40,000 – $90,000 a year, and the average American simply cannot afford that.
Medicare, available to retirees beginning at age 65 will pay for only medically necessary treatment, not “custodial” care. On the other hand if assets are minimal, an individual may be able to qualify for Medicaid, significantly diminishing the need for long-term care insurance.
Most people think about long term care when they are planning for retirement.
However, an individual may need long term care at any stage of their life, so it may be wise to think about this type of insurance when you consult a financial advisor about your portfolio or 401k. Tax breaks are available for qualified long term care policy premiums and benefits paid are tax-free.
Also, opting for long-term care insurance before age 50 may get you a better deal because your age at the time of purchase will play a big role in policy pricing. Many policies will increase at age 60, so purchasing a policy sooner than later may be warranted advises NAIC (The National Association of Insurance Commissioners.)
Inflation protection should be considered when looking at the value of your plan as well.
Consider a 55 year old couple purchasing three years of $150 per day coverage. This policy would have cost approximately $2,200 in 2005, but may cost as much as $4,150 a year by age 85. Those who are still at their peak earning potential might want to consider accelerating their payments, in other words doubling up their premiums for about ten years.
This will likely save you money if you don’t need care before your eighties.
NAIC suggests that you consider long-term care coverage if you don’t want to rely on others for support and you want to decide what kind of care you will have. If you do opt for coverage, research the insurance companies and look for trends in policy increases over time. Your local State Insurance Commission will have regulation guidelines that you may want to review.
When reviewing the policy options make sure you understand what they cover and more importantly what they don’t cover. For example some preexisting conditions may not be covered.
Don’t expect to rely on Medicare that typically only pays for a percentage of costs. To be eligible for Medicaid you may need to be below federal poverty guidelines to qualify.
A good long term policy should clearly:
- outline coverage
- offer at least a year of coverage in a nursing home
- will give you the right to cancel within 30 days
- have a guarantee that the policy cannot be canceled due to age or illness in the future.
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