Understanding Long Term Care

Purchasing long term care (LTC) insurance could be a smart financial move but you need to know a few details before rushing into the decision. For starters, it helps to know exactly what long term care insurance is. After that, it’s important to learn whether you should buy it, who sells it, how the insurance works, what it costs, the tax advantages involved, how to buy it and what types of state-sponsored plans exist. Here’s a quick summary of everything you need to know about long term care insurance:

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Long Term Care FAQs

Prices for policy premiums vary greatly based on the company you buy from, your age, gender, health status, marital status and the amount of coverage you opt for. It’s also essential to remember that premiums can go up even after you are covered. LTC insurance is not like fixed-rate life insurance. Common levels for monthly premiums run from around $200 to $300 per month.

The short answer is “yes,” but you need to speak with your tax advisor because LTC policy premiums must be claimed as medical expenses on your itemized tax return to give you an advantage. As you age, the capped amount of the deduction rises.

About half of all Americans will need some type of long-term care for between 3 and 5 years after they reach retirement age. Private insurance and Medicare won’t cover this treatment, called “custodial care” in the insurance industry. It can be very costly and can quickly drain your savings. The smartest option is to buy a LTC insurance policy while you are still working but nearing retirement age. Most people who have LTC insurance obtain it while they are in their 50s or early 60s. Should you purchase a policy? Short answer: yes.

If you end up needing adult day care, nursing home care, have to move to an assisted living facility or even need specialized medical care in your own home, most health insurance polices won’t foot the bill. You’ll need long-term care insurance to pick up the slack. Here’s what everyone should know about this important type of coverage:

Contact companies on your own and through your employer if your job offers a plan you can buy into. Don’t assume the job-based option is cheaper. That’s not always the case. Compare quotes carefully from all the companies you examine before making a commitment. It helps to get advice from a financial planner when comparing quotes.

The short answer is: not very many companies sell these kinds of policies. There are dozens of economic reasons for corporate insurers bailing out of the industry but the main one is that the profit margins are not that great for sellers. Even so, there are still several companies that will sell you a LTC insurance policy, including Transamerica, Northwestern Mutual, Bankers Life, Genworth Financial, Mass Mutual, Mutual of Omaha and New York Life.

After buying a policy, which might require a medical exam, you will have to apply for benefits after suffering a neurological impairment or physical impairment. Usually, a physical impairment must be two of the six basic “activities of daily living,” also called ADLs. The ADLs include things like being able to feed and dress yourself, bathing, getting in and out of bed, etc.

Most polices require you to pay for the first month or two of care out of your pocket before the policy benefits kick in. Daily payouts are capped for certain kinds of care and there are policies that allow spouses to share benefit caps. There are lifetime limits on amounts paid out too. All in all, even with the limits and special requirements, LTC policies are almost always beneficial for those who have them.

Some individual states offer special assistance for people who purchase state-approved policies from insurers. These so-called “partnership plans” allow you to qualify for Medicare assistance before you spend your entire savings after running out of LTC policy benefits. This means Medicaid will kick in sooner for you if you opt for one of the state-sponsored partnership arrangements. Check with your state insurance division to see if these kinds of plans are offered where you live.

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