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LTC (Long Term Care) Insurance: Risks and Benefits

As people have become aware of just how expensive it can be to go through long-term care (nursing homes, assisted-living centers, residential care facilities, etc.), they've become more proactive in figuring out ways to pay for it. Indeed, many people see their life savings eaten up by just a few years of long-term care. Because of this, it's only natural that insurance companies have jumped at the opportunity to sell long term care insurance.

However, long term care (or LTC) insurance is often prohibitively expensive and doesn't always cover what you think it does. In fact, many people will pay more for their LTC insurance premiums than they'd ever pay to an LTC provider. Still, it's a smart option for some individuals; so you'll need to take individual considerations into account.

The Odds You'll Need a Long Term Care Facility

Among individuals who reach the age of 65, more than two-thirds will require some kind of long-term care in their lives and have a 46 percent chance of ending up in a nursing home, according to a 2016 report on long-term care providers. The report estimates that, on average, an American who turned 65 in 2015 will spend $138,000 in long-term care services costs.

But while nearly half of all Americans will spend some time in a long-term care facility, the length of stay and the required services will vary widely.

While one-third of 65-year-olds won't need long-term care at all, 20 percent of people in this demographic will need long-term care for at least five years, according to statistics from the Department of Health and Human Services (HHS). The average annual cost of a private room in a U.S. nursing home is $92,376, meaning one-fifth of Americans will incur costs of roughly $500,000.

Depending on your health, genetic factors, and level of support, you may have a 50/50 chance of needing long-term care at some point. The cost of nursing home care varies by geographic location and level of care.

LTC Insurance: Is it a Safe Bet?

Some private insurance companies like to use fear tactics in order to scare you into purchasing LTC insurance. But nursing homes and residential care facilities rarely put the elderly out on the street with no roof overhead because of the protections afforded by Medicare laws. However, Medicare also has its limits and will only cover a short stay in a nursing home.

But if you have assets exceeding the value of your home by more than $300,000, or anticipate the need for such care, LTC insurance may be a safe bet. This is because LTC insurance for people in this category is considered to be more of a safety net than an investment.

Alternatively, older Americans may choose to put the money they'd otherwise spend on premiums into a high return, low risk investment such as a real estate investment trust (REIT), municipal bonds, annuities, or U.S. Treasury notes.

The Best Time to Buy LTC Insurance

Most people who purchase LTC insurance buy it at a median age of 65 years old. Before this age, most people are unable to predict their financial futures to such a degree as to know what kinds of finances they will be facing. But people who put off the decision until they're older often face astronomically expensive premiums. So, if you're considering LTC insurance for yourself, you should expect to come to a decision around the age of 65.

Determining Whether LTC Insurance is Right for You

Unless you have a high monthly income (where the insurance premium is less than 5 percent of your monthly income), LTC insurance may not be right for you. When you start to calculate your monthly income and the 5 percent, you should keep in mind that your monthly income may decrease after you retire, and your premiums for LTC insurance will probably go up the older you get.

When you start looking at LTC insurance, you need to be a very careful buyer. Remember that if you are going through an insurance broker, they often don't have your best interests at heart (they regularly work on a commission basis and are just looking to make the sale).

Take a close look at the following factors when determining whether you need LTC insurance:

  • Age - If you're under 65, you may not know what your needs will be in 20 or so years (although the premiums will be much lower); but if you're older than 65, the premiums will be very high.
  • Health - If you have a serious health condition, it may be difficult to get coverage or may be prohibitively expensive.
  • Income - If you qualify for Medicaid, which pays for limited nursing home care, it may also mean you can't afford the premiums for LTC insurance; in any event, consider what your income will be in the future (in addition to the present).
  • Taxes - You may be able to deduct the value of your premiums from your taxes if they're more than 7.5 percent of your adjusted gross income.
  • Family and Friends - If your family and friends are willing to help you with certain aspects of your care, then you may not need as much money for future care (also, you may decide to opt for home care instead).

Long Term Care Insurance: Final Considerations

This is your future, so be sure to read the terms of any LTC insurance policy you are considering carefully and ask any questions that may come to mind. In addition, if you can find a reliable forum online, you can ask opinions of people that have LTC insurance already and how they are liking it or disliking it.

Lastly, remember that LTC insurance is still just a bet. Before committing to the purchase of a LTC insurance plan, you should ask your financial advisor about it and see if there is anything else you could do with that money that would make more sense. Investments can often be the source of funding for long-term care, and you retain the benefit of having liquidity of your assets up until the point you start paying for long term care.

Have Questions About LTC Insurance? A Health Care Attorney Can Help

While the decision whether to purchase long term care insurance depends on many different factors, including your financial situation and personal health, you may also have questions about the law and health regulations. Get in touch with a health care attorney near you today to learn more about ways to plan for your future.

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