Five Mistakes You Can’t Make with Long-Term Care Insurance

in Financial Planning by

The good news — Americans are living longer. Not-so-good news: Many will eventually live with deteriorating health conditions that put them in nursing homes or require care that can last weeks, months, or years.

Statistically, it’s not just those in their 80s who are requiring care, but a number of younger people as well. The answer for some may be long-term care insurance, which pays for custodial care, home care, or nursing home care for periods longer than a year for those who have a chronic illness or medical disability. These costs are usually not covered by health insurance of Medicare.

“If you get Alzheimer’s, for example, you need supervision. You can either pay for it, your family will provide it, or you’re going to need some long-term care insurance that will help pay for some of the cost,” says Jesse Slome, executive director of the American Association for Long-Term Care Insurance.

But most people don’t know how to choose the right insurance provider or the questions they should be asking, leading to costly mistakes.

Here are five mistakes you can’t afford to make when purchasing long-term care insurance:

1. Impulse shopping

They may look the same, but there can be significant differences between policies. For one, even virtually identical policies may be substantially different when it comes to costs — even by as much as 40 to 60 percent. Too often individuals don’t shop around for their policies. But some insurance agents can only offer certain company’s policies, which means money-saving cost comparisons are difficult. One client of Slome’s was about to purchase a policy and then did some comparison shopping. She ended up getting a similar policy for the same price, but with $100,000 in additional benefits. “The size of the potential difference is huge,” says Slome.

2. Overlooking big issues in the fine print

Those small little words you can barely read at the bottom of contracts. Read them. Despite attempts to make buying insurance a simple process, it really isn’t. The fine print can mean significant differences come claim time — differences in terms of how much you get paid or how early your benefits kick in. Two policies may look to be identical from the brochure, but it’s really a specialized business. Understand what you’re buying.

3. Over-insuring or under-insuring

When buying insurance many people either get sticker shock at the seemingly high prices or they over-insure, says Slome. The challenge is projecting where you’ll be in 10 to 20 years and how much, say, a nursing home stay, will cost. Most people don’t factor into the equation their savings, their 401(k) or a property they may sell to pay for care and instead get scared away by the big dollar amounts. Something is always better than nothing when it comes to long-term care insurance.

4. Signing up after it’s too late

Your current health and age plays a critical role in determining what type of insurance you can get at what cost. Insurance companies will only accept and offer insurance to people in relatively good health. That’s why the right age to start planning for long-term care insurance is before you turn 64. At 65 when you qualify for Medicare you’ll be eligible for a slew of preventative screenings, which are likely to spot a problem that may disqualify you from obtaining insurance. By the time you have an illness or disability it’s too late to get insurance.

5. Missing the tax perks

Tax rules provide some significant advantages for small business owners to buy long-term care insurance and potentially have it as a complete tax deduction, making it one of the best kept money-saving secrets around.

Image used under Creative Commons by Flickr user 401K.

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