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Buying Long Term Care Insurance

The cost of inpatient nursing home care can exceed $60,000 per year and long-term care expenses typically are not covered by Medicare or by private medical expense insurance.  Many of us do not purchase long term care insurance due to our lack of knowledge about the benefits of this type of insurance and the cost of obtaining long term care insurance.

What is Long Term Care Insurance

Long term care insurance is private insurance that pays for or offsets costs related to nursing home care and other types of inpatient and outpatient care facilities.

Long term care coverage may not begin immediately upon entry to a nursing home or other facility.  Rather, long term care coverage begins when one or more doctors deem an individual to be unable to perform two or three of the specified “activities of daily living” (for newer policies).  The “activities of daily living” include dressing, eating, bathing, walking and toileting or maintaining continence.  Older long term care policies require a period of prior hospitalization for the policy coverage to begin.

Once long term coverage begins it generally pays all costs associated with nursing home or other care facilities, until the policy’s maximum benefit is exhausted.

How Much Does Long Term Care Insurance Cost

It is often said that “if you need long term care insurance you, cannot afford it; and if you can afford long term care insurance, you do not need it.”

There are a number of factors that impact the cost of long term care insurance policies.  Some of these factors include:

  1. actuarial assumptions used by the insurance company;
  2. the expenses of the insurance company that writes the policy and the level of benefits provided;
  3. the elimination period, the length of the benefit period, the age of an individual; and
  4. whether any long term care insurance riders are added to the policy

The actuarial assumptions used by insurance companies vary by company, so it is often helpful to shop for long-term care coverage with multiple insurers.  Long term care benefit levels are usually expressed in terms of years and dollars, with three or five years of coverage with a $100 to $150 maximum daily benefit being most common.

Consumers should recognize that long-term care insurance policies are generally not written for individuals over the age of 70, due to the increased chance that the individual will actually use the policy.

Individuals often add the following riders or features to their long term care policies:

  1. non-forfeiture benefit riders – which typically return all premiums that were paid if an individual lets the policy lapse,
  2. waiver of premium riders – which typically allow an individual to discontinue premium payments after a period of time after the individual starts receiving policy benefits, and
  3. inflation protection riders – which typically provide automatic increase in the daily benefit at an annual rate equal to some independent measure of inflation.
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