Ultimate guide to retirement
What is long-term care insurance?
A long-term care insurance policy doles out money to help cover the costs of nursing-home care,
an assisted-living facility or at-home assistance if you are no longer able to take care of yourself.
The allure of long-term care is obvious: It's the rare bird (or baby boomer) who doesn't worry
about how he or she will afford care later on. And if you're counting on Medicare, you're out of
luck. Medicare doesn't offer extended long-term care coverage. (Medicaid does, but only very
low-income retirees are eligible.)
Should I buy a long-term care policy?
The question of whether to buy is ultimately a question about your financial security. Imagining
yourself so frail and vulnerable that you need to live in an institution or rely on a stranger's help is
deeply unsettling. If you let an insurance agent frame the decision in those terms, you'll buy a
policy in five seconds.
Instead of freaking out, focus on the potential financial need. When calculating how much you'll
need to save for retirement, you may want to add in enough to pay for several months of
long-term care. That way you'll have some assets standing between yourself and Medicaid - and
therefore more options. And the more you save, the easier it will be to pay for long-term care
insurance if you want it when you're older.
If you are already in retirement or close to it, ask yourself whether you have enough assets to
bother protecting - and enough to live on in retirement. If you are scraping by, you may be so
pinched that you'll have to drop a long-term care policy before you need to use it.
Still feeling confused? A good fee-only financial planner - one who charges by the hour for advice
- can help you think through this decision and determine whether buying a policy is a good idea
for you. Long-term care insurance is very expensive - the annual premium can easily be $2,500
or more a year - and many insurers have jacked up initial premiums by 20% or more over the
past decade.
What should I look for in a long-term policy?
Figure out exactly what your policy will and will not allow. For example, if you buy coverage for
home care, will you have to use an agency, or can you hire an independent caregiver? If the
policy covers assisted living, does it cover the cost of housing or only the care you receive? Also,
ask the agent which facilities in your area the policy would cover - and which it wouldn't.
When comparing policies, factor in how many customer complaints each insurer has received.
Also, check out the insurer's history of premium hikes. Some state regulators can tell you about
those. The fact that an insurer has imposed many price increases in the past, however, does not
necessarily mean that it won't raise prices again. And one that hasn't raised rates still might.
Finally, you'll have to live with the policy you buy for decades, so choose a financially strong
company. Before you purchase a policy, ask the agent to give you the firm's latest financial
strength grade from one of the major rating services, such as Moody's Investors Service or
Standard & Poor's. An A rating or higher from Standard & Poor's, or an AA ranking or better from
Moody's, is a good indicator of financial strengthM
What is long-term care insurance?
A long-term care insurance policy doles out money to help cover the costs of nursing-home care,
an assisted-living facility or at-home assistance if you are no longer able to take care of yourself.
The allure of long-term care is obvious: It's the rare bird (or baby boomer) who doesn't worry
about how he or she will afford care later on. And if you're counting on Medicare, you're out of
luck. Medicare doesn't offer extended long-term care coverage. (Medicaid does, but only very
low-income retirees are eligible.)
Should I buy a long-term care policy?
The question of whether to buy is ultimately a question about your financial security. Imagining
yourself so frail and vulnerable that you need to live in an institution or rely on a stranger's help is
deeply unsettling. If you let an insurance agent frame the decision in those terms, you'll buy a
policy in five seconds.
Instead of freaking out, focus on the potential financial need. When calculating how much you'll
need to save for retirement, you may want to add in enough to pay for several months of
long-term care. That way you'll have some assets standing between yourself and Medicaid - and
therefore more options. And the more you save, the easier it will be to pay for long-term care
insurance if you want it when you're older.
If you are already in retirement or close to it, ask yourself whether you have enough assets to
bother protecting - and enough to live on in retirement. If you are scraping by, you may be so
pinched that you'll have to drop a long-term care policy before you need to use it.
Still feeling confused? A good fee-only financial planner - one who charges by the hour for advice
- can help you think through this decision and determine whether buying a policy is a good idea
for you. Long-term care insurance is very expensive - the annual premium can easily be $2,500
or more a year - and many insurers have jacked up initial premiums by 20% or more over the
past decade.
What should I look for in a long-term policy?
Figure out exactly what your policy will and will not allow. For example, if you buy coverage for
home care, will you have to use an agency, or can you hire an independent caregiver? If the
policy covers assisted living, does it cover the cost of housing or only the care you receive? Also,
ask the agent which facilities in your area the policy would cover - and which it wouldn't.
When comparing policies, factor in how many customer complaints each insurer has received.
Also, check out the insurer's history of premium hikes. Some state regulators can tell you about
those. The fact that an insurer has imposed many price increases in the past, however, does not
necessarily mean that it won't raise prices again. And one that hasn't raised rates still might.
Finally, you'll have to live with the policy you buy for decades, so choose a financially strong
company. Before you purchase a policy, ask the agent to give you the firm's latest financial
strength grade from one of the major rating services, such as Moody's Investors Service or
Standard & Poor's. An A rating or higher from Standard & Poor's, or an AA ranking or better from
Moody's, is a good indicator of financial strengthM
| What will a long-term care policy cover? It typically gives you payouts if you wind up having cognitive impairment - such as dementia or Alzheimer's - or if you physically can no longer perform some specific "activities of daily living" on your own. We're talking about feeding yourself, bathing yourself and so on. Payouts from the policy will help cover the cost of assistance to help you get through the basics of daily life. For example, the policy can pay for someone who stops by the house for a few hours a day or a few days a week. Or it can help with the cost of a senior day-care facility, an assisted-care setup or full-fledged nursing-home care How much will payouts be? As with all insurance, the payouts you receive are a reflection of the coverage you choose. Bear with us here; it's a bit complicated. When shopping for insurance, you - along with your LTC insurance agent - typically start by figuring out the daily cost of nursing-home care today. Next, you need to decide how many years of that coverage you would like. The bigger the number, the more expensive your policy. As a rule of thumb, the average amount of time spent in a nursing home (among folks who need that type of care) is about three years. Let's say you want to plan for care at $180 a day - the current national average - and you want the coverage to last for four years. That's $180 multiplied by 1,440 days, which equals $259,200. So, in the jargon of LTC, you would choose a policy with a lifetime benefit of $259,200. That doesn't mean you will be limited to drawing $180 a day for four years. Most plans just let you draw on the lifetime benefit: You can draw it down over 10 years or 10 months. That's your decision. All the company cares about is that your total lifetime benefit will not exceed that $259,200. Will payouts keep pace with inflation? Only if you pay for inflation protection - and you should. It is crucially important that if you purchase LTC insurance, you make sure your policy includes an annual inflation adjustment rider. It will do you little good to buy a policy today that has a $180 daily benefit if the cost of care rises to $400 a day or more in the future. The inflation rider will increase your daily benefit coverage by a set amount each year. To protect yourself, buy a policy with a benefit that increases by 5% compounded a year. Be careful: Don't go for "simple" interest. Inflation grows at a compounded rate. In 20 years, a $100 daily benefit would turn into $200 with 5% simple interest. Compounded, the benefit would be $265. How much will a policy cost me? It all depends on how big a lifetime benefit you choose and the level of coverage you want. You can add many different options to basic plans. But, in general, we're talking about an annual premium that will cost a few thousand dollars a year, at a minimum. And you will pay that for a long time: from the first year of your policy all the way through until you start drawing on the policy. That could be 30 years down the line. This is important: You will have to keep paying the premium when you are retired and likely living on a smaller income. If you stop paying your premium at any time, you can lose your coverage, including every penny you paid up to that point. If you doubt your ability to keep paying for the policy through retirement, you probably shouldn't buy it. The National Association of Insurance Commissioners (NAIC) suggests that you spend no more than 7% of your income on premiums. When do I stop paying premiums? When you receive benefits you typically are not required to continue paying your premium. But if you then stop receiving those benefits - say, you needed nursing-home care for just a few months, after an illness - you'll need to resume making premium payments once you are no longer drawing the benefit. |
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LONG-TERM CARE INSURANCE
KNOWLEDGEFINANCIAL.COM
LONG-TERM CARE INSURANCE: What is long-term care insurance? Should I buy a long-term care policy?
What should I look for in a long-term policy?
What should I look for in a long-term policy?
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| Long-term care insurance A secure financial future involves protecting your financial independence if you should need long- term care. So it's important to understand how long-term care insurance can help safeguard you if you are no longer able to care for yourself. Plan ahead for long-term care It’s likely you or your spouse or partner eventually may need long-term care for an extended period of time at home, in an assisted living facility or at a nursing home. According to the U.S. Department of Health and Human Services, about 70% of Americans will need some type of long-term care1, Since this type of care is a likely part of most people's lives – and is costly – you may want to incorporate long-term care insurance into your overall financial plan. Contrary to what many people think, healthcare insurance programs such as Medicare, Medicaid and Medigap do not cover all long-term care expenses. How long-term care insurance can help A long-term care insurance policy offers a variety of choice and riders. If you qualify and have met the elimination period, the policy will pay a specific dollar amount each day you need long-term care, depending on the options you select. This amount can be used toward the care you require, ranging from in-home care, assisted living or full-time resident (nursing) care. Common provisions to consider when selecting long-term care insurance include: Elimination (waiting) period before benefits are paid Duration of benefits Daily benefit Optional inflation rider Range of care Coverage of pre-existing conditions Premium increases during policy period Guaranteed renewability Grace period for late payment Return of premium Prior hospitalization An Ameriprise financial advisor can help you make informed decisions about what works for you, including how much long-term care may be needed, what type of care you prefer, the cost of each option and how much to expect from government benefits. Working with an advisor can help you prepare for future needs so you can focus your energy on what's important now – enjoying life with peace of mind |
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