What is long-term care insurance and do you need it?

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Long-term care insurance is an important part of financial planning that’s too often overlooked as you’re getting ready for the future.
Part of that is because there’s confusion about what long-term care insurance does. And then there’s also the question of cost, which has been unmanageable for some.
In this article, we’ll take a look at what long-term care insurance is and suggest some ways to make it more affordable.
Understanding long-term care insurance
When you’re planning for retirement, it’s important to save money to replace your income when you no longer work. But what about health care? If you have health care retiree benefits through work, that’s one option.
For those who don’t, there’s Medicare. And for those below a certain income level, there’s Medicaid.
But as you age, what happens when you need help with the everyday activities that you used to be able to accomplish on your own?
“People think the government is going to pay. But the government requires that you completely impoverish yourself before they’ll pay through the Medicaid program,” money expert Clark Howard notes. “You can have no assets and they ultimately take your family home. Ultimately, they take everything if you depend on the government.”
So it’s your choice: Take your chance that you’ll be in the small minority of seniors who never needs long-term medical care in old age. Or buy a long-term care insurance (LTC) policy.
What is long-term care insurance? — Table of contents
What is LTC?
What does it cover?
When it the best time to buy LTC?
How do you buy LTC?
Understanding hybrid policies
Shopping tips for LTC
What is LTC insurance?
Long-term care insurance LTC or LTCI application.
Long-term care insurance is an insurance policy set up to pay for long-term medical care services. These services can include personal and custodial care in a number of living arrangements and settings.
An LTC policy will pay a daily amount for services to assist policyholders with the costs of finding the help they need to accomplish routine activities they can no longer do on their own.
What does it cover?
LTC policies typically pay for skilled nursing care to assist policyholders with daily activities including:
Bathing
Dressing
Eating
The care can be delivered in a variety of settings:
Nursing homes
Assisted living facilities
Skilled care in your home
When is the best time to buy LTC insurance?
Because LTC insurance can be costly, you typically want to buy it in your late 50s to early 60s. By then, your children should be grown, which frees up some of your cash flow in your life. Yet you’re also young enough that you can pass medical underwriting for a policy.
So late 50s to early 60s is really the sweet spot for buying LTC insurance.
If you’re tempted to lock in a lower rate by buying a policy earlier, Clark says don’t be. Since too many companies made promises of coverage that were too generous in the past, the market for LTC insurance is going through some pain at this time.
“Right now, there’s no advantage to buying LTC insurance early because the market’s pretty messed up right now,” the money expert notes. “Give it time to get more stable.”
How do you buy LTC coverage?
Shopping for LTC insurance may be simplified by contacting an independent agent who can shop quotes from a variety of companies for you. The following companies are all good starting points:
AALTCI.org
LTCTree.com
PrepSmart.com
Understanding hybrid policies
As mentioned before, one of the big problems with LTC insurance is the cost. Premiums can often be several thousand dollars a year and they often go up by leaps and bounds. But a new version of LTC coverage called a hybrid policy may offer a solution.
“The problem with long-term care policies is that the policy premiums are not guaranteed. With a hybrid policy, you buy a whole life insurance with a rider that lets you convert the death benefit into payment while you’re living to afford long-term care,” Clark says. “The advantage is that you never have to worry about premium escalation. You have preordained the total benefit of your policy.”
According to The Wall Street Journal, the target market for these hybrid policies tends to be wealthier families who don’t want the financial legacy they plan to leave their heirs eaten up by rising medical costs.
Clark’s LTC insurance shopping tips
1. Don’t buy LTC insurance if you are very wealthy or very poor. Very wealthy means having investable assets of $3 million to $4 million — not including your home. And very poor would mean qualifying for Medicaid.
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2. Make sure the benefit adjusts over time based on inflation. Medical inflation is higher than the normal inflation rate. You should look for an inflation level somewhere as much as 3% a year — because what seems like a good benefit today will look puny in 15 or 20 years.
3. Look for a 5-year benefit with a 6-month waiting period upfront.
4. Adult kids of aging parents may want to consider paying the premiums on their parents’ policy themselves. Why? To protect their financial interest in any possible inheritance and to protect their parents against medical expenses they may face some day.
5. Finally, only consider insurance companies that have been rated A++ or A+ (by A.M. Best), which means they are of the highest financial strength. It also means that they likely won’t jack up the rates after a few years, which has been an industry-wide problem.
Here are a few options to get you started:
LTC insurance provider Financial strength and stability rating
Northwestern Mutual Life A++
New York Life A++
Mass Mutual A++
Mutual of Omaha Insurance A+
Source: A.M. Best
Final thought
A lot of people shy away from buying long-term care insurance simply because they don’t understand it. But buying this policy is a key part of financial planning for your later years.
Remember, you don’t want to have to depend on the government to pay for your long-term care — unless you’re fine with impoverishing yourself and leaving nothing behind for your heirs!

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