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Long-term care is often associated with the elderly but it applies to the ongoing care of individuals of all ages who can no longer independently perform basic activities of daily living (ADLs) such as bathing, dressing, or eating. This could be due to an illness, injury, or cognitive disorder. This care can be provided in a number of settings, including private homes, assisted-living facilities, adult day-care centers, hospices, and nursing homes.
Typically you pay premiums and when benefits are triggered, the policy pays a selected dollar amount per day for a set period of time. The type of long-term care received would be outlined in the policy details. Typically, benefits are payable when you're unable to perform a certain number of ADLs (e.g., two or three). Some policies, however, will begin paying benefits only if your doctor certifies that the care is medically necessary. Other policies may also offer benefits for cognitive or mental incapacity, demonstrated by your inability to pass certain tests.
Sometimes, long-term care (LTC) coverage can also be combined with an annuity or a life insurance policy. These hybrid products allow the policy owner to use the annuity cash value or the life insurance death benefit for long-term care expenses. It's possible that cash values can be withdrawn from annuities or life insurance tax free to pay for qualified long-term care insurance.
Although Medicaid does cover some of the costs of long-term care, it has strict financial eligibility requirements. In essence, you would have to exhaust almost all of your life savings to become eligible for it. And since HMOs, Medicare, and Medigap don't pay for most long-term care expenses, you're going to need to consider alternative ways to pay for long-term care.
Whether or not you should buy it depends on a number of factors, such as your age and financial circumstances. Consider purchasing an LTCI policy if some or all of the following apply:
Read the Outline of Coverage portion of each policy carefully, and make sure you understand all of the benefits, exclusions, and provisions.
When comparing policies, you'll want to pay close attention to these common features and provisions:
Note: Withdrawals from an insurance policy may generate an income tax liability, reduce available cash value and reduce the death benefit or cause the policy to lapse. All optional benefits such as riders and bonuses are available for an additional cost. The guarantees associated with optional benefits are backed/subject to the claims-paying ability of the issuing insurance company. It is important to weigh the costs against the benefits when adding such options to an annuity/life insurance contract.
There's no doubt about it, LTCI is often expensive. The cost of LTCI depends on many factors, including the type of policy that you purchase. Premium cost is also based in large part on your age at the time you purchase the policy. The younger you are when you purchase a policy, the lower your initial premiums can be.