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When to Buy Long Term Care Insurance

 

Today, the average cost of spending a year in a nursing home in the United States is about $40,000, and this is not covered by most health insurance plans. Unless you fall into the economic extremes of being so wealthy that you can carry such an expense, or have so little income that you can meet strict Medicaid requirements, you should give some serious thought to purchasing long-term care insurance.

 

Some of the most compelling reasons for taking this step are:

  • Rather than spending your savings on long-term care, you will preserve those assets for your dependents and heirs, and the premiums may also be partly tax deductible.
  • After age 65, one out of every three men and one out of every two women will eventually need long-term care.

What you should look for in a long-term care policy

 

The best type covers care rendered in a nursing home, an assisted-living facility, or at home. The benefits are generally indicated in daily amounts, and a life-time maximum is established. Some policies pay half the per diem for in-home care that they pay for care in a nursing home. Others do not make this distinction, or provide a "pool of benefits" which you can tap as needed.

 

When you buy this insurance, the policy should clearly indicate when the benefits will apply. These requirements will include:

  • Difficulty in performing two or three established activities of daily living without assistance - dressing, eating toileting, bathing, or the inability to move from one place to another (or between chair and bed).
  • Some type of mental incapacity - generally Alzheimer's disease, Parkinson's disease, or stroke.
  • Certification by a physician that long-term care is required, or some type of medical necessity. (Avoid policies that require even a brief hospital stay, as they can be very restrictive.)

 

Since long term care insurance benefit periods can vary from two-year to life-time coverage, you can reduce your premiums by opting for coverage of three to four years, which exceeds the average stay in a nursing home. Look for a policy with a "waiting period", in which you will pay for "an initial period of care", in order to reduce your premiums since this is less expensive than first-day coverage. Also, if you are below age 65 when you buy your policy, inflation protection will be an important factor. (Ideally, your benefits will be compounded at 5% annually.)

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