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The Confusion of Long-Term Care Insurance

A recent New York Times article, “Long-Term Care Insurance Can Baffle, With Complex Policies and Costs,” commented that insuring for long-term care “is a lot like trying to cover the future financial impact of climate change.” It’s very difficult to predict and will be costly to mitigate. Few have prepared for this, but there is private long-term care insurance to help pay for expensive services if you are mentally or physically incapacitated late in life. Just like climate change, this type of insurance can be confusing and not always reliable. That’s why so few people purchase this insurance, even though about 70% of those over age 65 will require some form of long-term care before they die. Only about 20% own a policy. Millions of those who end up needing long-term care pay for it themselves, and after they run out of money, turn to the government for help.

The average annual expense for a semi-private nursing home room is more than $80,000, according to a recent survey—a 4% hike from last year. This means the cost of nursing home care is growing at more than double the rate of overall inflation.

Insurance premiums are lowest when you’re younger, and if you ever do need it, most policy owners will face premium increases, which have more than doubled from 2007 to 2014. This is why many let the policy lapse—and then they have no coverage and no compensation for money spent on the premiums.

It’s not a product people want to buy because it’s too complicated and too expensive.

Lifetime coverage isn’t offered anymore, and, unlike basic health insurance, you can be rejected for a policy if you have a pre-existing illness or condition. About 45% of applicants age 70 or older were denied coverage in 2014. Because these policies are complex and often have “waiting” or “elimination” periods—when benefits aren’t paid but reduce cost—they’re difficult to analyze. In addition, there are estate planning considerations: you may want to leave something to your family and not let your assets be eaten up by long-term care expenses in your final years.

There are some newer products called hybrids, which add on long-term care benefits to life insurance and annuities that may work for you, but they add even more layers of cost and complexity. For those in such situations, experts advise consulting an elder law attorney to see if this product makes sense for you.

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