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Long Term Care Insurance Basics

Life expectancies have exploded over the last 50 years, and for most couples, at least one spouse will live until age 90 or older.  Yet along with age come a variety of maladies — everything from diabetes and high blood pressure to broken hips or dementia. Often, these types of illnesses and accidents require health care expenses in addition to the expense of longterm assisted or living care.

But how do you know whether you should purchase a long term care insurance (LTCI) plan to complement your retirement plan?

According to the National Association of Insurance Commissioners (NAIC), before making this decision, ask yourself these questions:

● Do you have assets you’d like to protect?

● Do you need to ensure your nest egg remains untouched?

If you answered “yes” to these questions, then long term care insurance is worth discussing with your agent or advisor.

● Is your Social Security your only source of income?

● Will you soon be eligible for Medi-Cal?

● Are your retirement assets negligible?

If you answered “yes” to these questions, then you probably won’t need long term care insurance, but you should discuss it with your agent anyway.

Before meeting with your insurance agent or advisor, it will be helpful to review the NAIC’s “Ten Tips Regarding Long Term Care Insurance”:

1. Long term care is not ideal for everyone.  As mentioned above, if you have little to no retirement savings and are currently receiving Social Security payments, most likely you could not afford the additional expense.  For these reasons, you could qualify for state assistance, which supersedes the need for LTCI.

2. Be certain you understand what is typically covered under an LTCI policy, and conversely, what is not covered.  Don’t hesitate to pose detailed questions to your agent or advisor or to the carriers that offer this coverage.  You don’t want to have false expectations, and on the other hand your policy may cover situations that you may not consider applicable.

3. Ask for guidance from your retirement planner or insurance agent to determine if long term care insurance is appropriate for your individual situation.  If he or she agrees, ask for help budgeting it in your lifestyle and also ask them to provide you with a list of LTCI companies they work with so you can do some independent research.

4. If you don’t want to become a “burden” to your loved ones (both from a financial and caregiving point of view), then LTCI is certainly worth investigating.  This is also true if you’d like to have more control over which type of facility you’ll receive care in should you need it.

5. Check with a variety of companies before committing to a policy.  In addition to asking each carrier about their rate raising history, the NAIC also recommends that you do a comparison that considers:

● benefits

● coverage limits

● covered facilities

● insurer ratings (from A.M. Best or Moody’s)

You’ll also want to investigate the strength and reputation of each company and that they possess the correct licenses to offer this type of financial product.  Contact your state insurance department to verify your findings or to dig deeper into a company about which you have questions.

6. Learn to watch the rates.  Start by checking with the state insurance department to see how your state regulates premium increases among LTCI providers, and then conduct a bit of research on the major carriers you’re considering and evaluate their respective histories of raising rates for this coverage.

7. Try to avoid solely relying on Medicare or Medi-Cal to pick up the tab for your long term care.  While Medicare pays for a small amount of certain nursing home costs, if you want to qualify for Medi-Cal — as it could cover long term care, albeit in a typically less than desirable home — you’ll need to spend down your assets until you reach the poverty line to qualify or you’ll need the help of an attorney in order to find out if there is any way you could avoid that.

8. Many long term care insurers will choose not to cover preexisting conditions.  Before you begin developing the ailments often associated with older age, it’s a good idea to buy LTCI as young as possible, ideally around age 50.  The NAIC also warns that many LTC insurers use age 60 as an automatic trigger to increase your rates, so be sure to check on those rules, too.

9. Remember that if you purchse a qualified long term care insurance policy, your premiums will receive tax breaks, and furthermore, the benefit payments are also tax-free.

10. When you purchase LTCI, the insuring company should send you your policy.  Be sure to read it carefully and make certain you understand its contents in their entirety.  You may also elect to add an inflation protection option to your policy.  This option periodically increases your benefits levels without you having to provide evidence of insurability first.

The decision to purchase a long term care policy is one that should not be entered into lightly.  This is why working with a reputable agent or advisor who represents quality insurance carriers is so important.  But these tips offered by the NAIC should get you started thinking about your LTCI needs and desires — and whether it fits into your retirement plan.

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