Long-term Care Insurance

By Kristen Castillo

November 4, 2011 5 min read

Eight million Americans have long-term care insurance. In the next year, about 500,000 policies will be sold.

"Everyone who is 50 or older needs to do some long-term care planning," says Jesse Slome, executive director of the American Association for Long-Term Care Insurance, a national trade organization representing several thousand insurance companies. "The older you get the more likely you'll get sick."

*What It Covers

Slome says this is the first generation of Americans facing the issue of needing long-term care and finding a way to pay for it.

Long-term care insurance pays for things that typically aren't considered medically necessary, such as helping you prepare and eat meals, shower and get dressed, and use the restroom. If you develop Alzheimer's disease (after you signed up for long-term insurance), for example, you may not need to be at a hospital, but you could require a lot of daily care.

Long-term care isn't covered by Medicare or typical health insurance. Without it, your choices would include paying for the care yourself, relying on a spouse or family member to help, or going on government assistance.

"With the average cost of a nursing home running about $6,800 per month and the average cost of an assisted-living facility running about $3,500, it doesn't take a lot of math to understand how long-term care insurance is helpful," says Patrice Antony, who is the founder and president of Elder Advocates Inc.

*Application and Activation

You need to be in good health when you apply for the insurance. Be honest when explaining your health and any medications prescribed. After all, just by applying, you're giving the insurance company the right to review your medical records to access your health history. They'll discover whether or not you're telling the truth.

You can activate long-term insurance in one of two ways: 1) You can't independently do two or more daily activities such as eating or walking. 2) You are diagnosed with a cognitive ailment such as Alzheimer's.

"You can buy as much insurance as you can afford," says Slome, explaining that some people choose and pay for unlimited coverage. One recent unlimited coverage claim exceeded $1.5 million.

Don't worry about losing coverage if your long-term insurance company goes out of business, because each state and the federal government guarantee insurance coverage in this scenario.

*Getting Declined

Pre-existing conditions such as schizophrenia, Parkinson's disease and kidney failure make an applicant ineligible for long-term care insurance.

Slome urges applicants to apply when they're between the ages of 52 to 64 and in good health. Waiting too long could mean an insurance disqualification because of illness or diagnosis.

Recent statistics from the American Association for Long-Term Care Insurance show that only 24 percent of people ages 60 to 69 were declined, compared with 45 percent denials for people ages 70 to 79. The least denied age group? People ages 50 to 59 were only turned down 17 percent of the time.

"This is an age of specialization," says Slome. "This is a complicated product. You only purchase this one time because what you pay is based on your age when you apply."

Insurance companies can ask whether an applicant has already been declined by another insurer. A denial from one company may hurt your chances of getting coverage from another. Still, not all insurance companies ask about denials.

*Payment

Your yearly fee for long-term care insurance is locked in at the time you buy the coverage. Your rate will remain unchanged even if your health declines.

"A smart consumer shops and compares prices," says Slome, noting prices can differ by 40 to 90 percent!

For example, according to AALTCI, a single person, age 55, will pay $1,480 a year for coverage currently worth $169,000, which will be valued at $410,000 when the person turns 85.

Planning for the future isn't always easy, but it's important.

"You can't stop the aging process. It will catch us all," says Antony. "Preparing financially to maximize the living arrangement options makes total sense. Long-term care insurance is part of that preparation."

Remember to consider long-term care insurance as a part of your overall investment portfolio.

Antony explains, "If the right planning is done, the cost for the product is minimal for what you get in peace of mind and guarantee to protect your assets."

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