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Understanding Long-Term Care Insurance

Someday you may need long-term care. That means you might need help with basic daily activities or ongoing care in a facility. One option to pay for such services is long-term care (LTC) insurance. But before you sign up for a policy, you have a lot to learn. Here’s what you need to know.

Why plan for long-term care?

About 49% of men and 64% of women reaching age 65 today will need significant long-term care during their remaining years. Nearly half will need some paid assistance, with about 14% needing more than two years of paid care at an average cost of $120,900.

Who pays for long-term care?

Medicare, the public health insurance program for people 65 and older, doesn’t cover long-term care beyond some skilled care. Some Medicare Advantage plans offer limited supplemental coverage. Veterans may access long-term care through the U.S. Department of Veterans Affairs. Medicaid covers low-income Americans, but you typically can’t get it unless you've exhausted most of your savings.

What is traditional long-term care insurance?

Traditional LTC policies cover about 6.1 million Americans. You pay premiums and make claims if you need the covered services. But if you stop paying, you lose the coverage. These policies can, with state regulators' permission, have rising premiums over time.

What is a hybrid policy?

Hybrid policies combine coverage for long-term care with another benefit, like life insurance or an annuity. These policies eliminate the risk of rising premiums but tend to be more expensive than traditional ones.

How does long-term care insurance work?

LTC policies may limit what conditions they cover and may have a waiting period before benefits kick in. Benefits are typically capped at a certain amount daily or monthly, up to a lifetime maximum or a certain number of years. Once you are getting benefits, premiums are typically waived.

To buy or not to buy: making choices

Consider your budget, assets, overall financial condition, ultimate financial goals, the full range of insurance options, your age, and health. Ways to pay for your policy include health care savings accounts or exchanging an existing life insurance policy or annuity for a long-term care policy. Other options include group policies, shared care for couples, and partnership policies that allow you to keep more assets if you need Medicaid.

Making an informed decision about long-term care insurance requires careful consideration of your current and future needs, as well as a thorough understanding of the available options. It's important to weigh the costs and benefits of different policies and choose one that best fits your individual circumstances and preferences.

Source: AARP

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