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The Online Advisor

September 2008

Smart Business

Long-term care insurance: What you need to know before you buy


Mention long-term care insurance in a crowd, and you'll likely receive a collective groan. Lacking the immediacy of health insurance and the certainty of life insurance, many people find it difficult to move this financial planning issue to the top of their to-do list. And when they finally do, it's often too late.

Long-term care (LTC) insurance provides coverage for nursing and personal assistance costs related to chronic illness or disability. Such services are notoriously expensive, potentially wiping out one's life savings. If you want to hedge your long-term care future with insurance, here are some things to watch for.

* Coverage. Some LTC plans pay only for nursing home expenses and others only for in-home care. A more expensive policy will cover both types of care, plus assisted living or adult day care expenses. Most LTC policies provide a monthly or daily benefit limit. Costs above this limit would be your responsibility.

Policies also vary as to the timing of the coverage. A plan might require you to pay the first few months of care out of your own pocket (called the elimination period). Further, some policies will pay benefits only for a specific length of time, while others pay for life.

* Cost. LTC insurance is expensive, but there are two ways you can help ease the burden. First, establish a policy long before you begin having health issues. Old age and ill-health will lead to much higher premiums. The best time to buy a policy is probably many years before you are likely to need it.

Second, seek a "qualified" long-term care policy that is eligible for a tax deduction. If you can write off the premiums, the tax savings will help offset the costs. The rules for deducting long-term care insurance premiums are complex, so get details before you buy.

* Company choice. The insurance company you choose can be as important as the type of coverage you buy. Research the financial soundness of potential insurance companies by reviewing their industry rating. And ask for references. You should shop and compare LTC policies like you would any significant purchase.

Long-term care is not a pleasant issue to dwell on, but a sober review now could reap benefits down the road. For a complete analysis of this and other financial planning issues, give our firm a call today.








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