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Insurance: Understanding Long-Term Care Insurance

Aug 17, 2007
Today's seniors are living longer than ever, but as life spans increase, so do the needs for additional care. The majority of today's retirees will need some form of special care as they age, whether that help is delivered in their own residence, in an assisted living facility or at a nursing home. The cost of such care is skyrocketing and many find they are unable to afford it.

Our recent series of articles has discussed this situation in great detail, exposing the gap that exists between what seniors need and what government programs actually provide. The best way, by far, to fill this gap is with Long Term Care Insurance.

Long Term Care Insurance (LTCi) is an insurance policy that covers your care when you can no longer perform at least two of six daily functions. These 'activities of daily living' are bathing, dressing, eating, toilet use, urine and bowel continence, and getting in and out of a bed or chair.

Each LTCi policy works a little differently. Some require you to cover the first 90 days of care before coverage begins, while others waive that waiting period if the need is for in-home care. Some pay so much per day, while others pay actual expenses up to a certain amount. Some have care coordinators that arrange for all the care, so you don't see the bills or have to handle any paperwork.

Anyone seeking to purchase LTCi has to medically qualify. The underwriters look at your health differently than if you were applying for life insurance. LTCi underwriters are more concerned about illnesses and diseases that are likely to keep you from caring for yourself, not those that will cause death. Osteoporosis and diabetes are examples.

Most companies have preferred rates for those in excellent health, with normal rates for the rest. LTCi premiums are also based on your age. That means the longer you wait the higher the premium will be. There is a two in ten chance of needing long-term care after age 50, a two in five chance after age 65, and a seven in ten chance after age 75.

As a result, it is better to buy LTCi sooner as opposed to later. This should be seen as a pre-retirement purchase. I recommend strongly considering it around age 50.

There are many factors to consider when choosing a LTCi provider. Since this coverage is so critical, only do business with insurance companies rated at least AAA or AA by Standard and Poors. Beware of companies that have just entered the market. Check how many LTCi policies they have issued. If they haven't issued LTCi policies for at least 10 years and aren't one of the major players, stay away.

Many companies (including some that are major household names) entered the business, only to exit it a few years later. Others don't have the actuarial experience to properly price policies and end up raising premiums. Either way the policy holders suffer.

Don't choose a company that has raised rates on existing policy holders. Don't choose a plan that requires you to buy additional insurance every three years to protect yourself from inflation. It's better to have inflation protection automatically built into the policy.

You get to choose how much coverage to buy. Don't purchase three years of coverage just because that's the length of the average nursing home stay. This is ridiculous! The majority of people use LTCi to remain independent, at home, as long as possible. They get LTCi because they don't want to go into a nursing home! Get unlimited coverage if you can afford it.

In my experience, the best Long Term Care insurance is Genworth Life Insurance Company (formerly General Electric). They are the biggest kid on the block, doing LTCi business since the 1970s. No one that has purchased a policy from them has ever had a rate increase. It sets the Gold Standard in the industry.

Don't try to save a few dollars by going with a questionable company. This is insurance that could pay back 10-100 times what it costs you. There's a 50% chance you will use it. Don't skimp--what you save today may cost you much more down the road.\
About the Author
Nationally-syndicated financial columnist and Certified Financial Planner Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He will answer your financial question FREE at http://www.guardingyourwealth.net
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