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Long term care insurance: benefits and drawbacks

A number of older Texans living in the Houston area may have begun to think about how they will pay for medical care later in life. Anyone who has spent some time in a hospital or a care facility knows that treatment comes very dear. Because retirees have a relatively fixed pool of assets on which they can draw to cover medical bills, it is important to engage in care planning to decide how to defray the costs of treatment and procedures when they arise.

Some people may be eligible for Medicaid, which requires its own specific planning. But in today’s post we will briefly address the pros and cons of long term care insurance. This form of insurance is designed to help pay for the often heavy cost of extended stays in assisted living facilities and nursing homes. Some argue that it can play an important role in certain care plans, while others say that it is not often worthwhile.

Its proponents argue that the financial risk of not having a policy–losing a significant portion of a person’s life savings if extended care is required–is far greater than the cost of the annual premium. Therefore, they say, it makes sense to be covered just in case the worst happens. In addition, they cite data that show about 70 percent of those over 65 years old will need some form of extended care.

Opponents note that long term care policies typically have a 90-day delay from the time that a person enters a nursing home until the time the insurance company provides benefits. This waiting period functions much like a deductible. But roughly two-thirds of those who enter a nursing home leave before the end of the 90 day period. In addition, once the insurance company begins payment, many policies may not completely cover all costs.

Both sides seem to concede that if anyone should purchase a long term care insurance policy, it should be someone of intermediate wealth. Medicaid will cover those with lower wealth, and high-asset individuals may be better off paying out of pocket or self-insuring. Whether to purchase an insurance policy depends on each person’s individual circumstances, but a person should be fully informed of all the relevant facts before making a decision.

Source: The Wall Street Journal, “Should You Purchase Long-Term-Care Insurance?” Mark Meiners and Prescott Cole, May 14, 2012.