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LTC Insurance Considerations

The long-term care (LTC) insurance industry suffers from a similar malady as health insurance: When fewer people buy policies, insurers must charge higher premiums, which, of course, deters even more people from buying policies. With the graying of America, LTC insurance should be a booming business, but in recent years, it’s been rapidly declining. Last year, despite the fact that around 3 million people turned 65, only 100,000 LTC policies were sold in the U.S.

Like health care, the long-term care industry is experiencing rising costs, yet, with a shrinking insurance pool, insurance carriers are looking for a viable solution to help cover these increases. Premiums are up, and coverage options are down. Many pre-retirees and retirees question the stringent criteria to receive benefits and the limited coverage lifespan. Some LTC policy owners can’t take advantage of their benefits during a short recovery stint. Generally, LTC policies are designed for the last few years of life. The trouble is those “last few years” may now continue for a decade or more — much longer than many policies cover.

Is it worth it to buy traditional LTC insurance? It’s important to recognize that traditional health insurance and Medicare do not cover the costs of long-term care if that’s the only care you need, and Medicaid requires spending down assets to qualify for benefits. Presently many individuals only have the option to either pay out of pocket or buy insurance with LTC coverage.

Up until recent years, LTC insurance had been the only viable solution to guarantee a way to help pay for long-term care, either provided at home or in a facility. However, today’s healthier, longer-living retirees who could use some help around the house may wonder if those expensive premiums could be put to better use in the household budget. Currently, premiums run $3,000 to $6,000 a year depending on age, gender, health status, coverage term and daily reimbursement rate.

The problem is trying to plan for an uncertain future. If one or both spouses need full-time nursing care, that cost can deplete a retirement nest egg. On the other hand, does it make sense to keep paying expensive premiums when that money could be better used on a daily basis for a handyman, lawn care, house cleaning and/or a driver?

Depending on individual circumstances, some people may want to consider allocating those funds to other types of financial vehicles, particularly ones that offer alternative options for long-term care coverage in addition to growth opportunity. In fact, in recent years, the LTC insurance industry has begun to reinvent itself in order to meet unprecedented demand with additional options to help cover the costs of long-term care. Some insurance carriers have started offering an array of short-term benefits, lifetime coverage and policies that pair traditional life insurance or an annuity with an LTC rider. Please note that the addition of an LTC rider may require an additional fee, may be subject to eligibility requirements and may not cover all the costs associated with long-term care.

It’s important to consider how to pay for possible long-term care when you develop a retirement income plan. Consult with an experienced financial professional about what options are available and what would be appropriate for your particular situation.

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