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Long-term care insurance: Tips when coverage fails

Setting aside money for retirement is just one step towards future financial security. In addition to funding retirement savings, a long-term care insurance policy may provide additional protection in the event of debilitating illness. This form of insurance is designed to afford protection against the expenses of long-term care in the home or in a nursing home or facility. Such policies generally provide reimbursement for the costs of care for assistance in bathing, dressing or eating. Policies vary in the amount of costs reimbursed, the scope of services that are covered, and the duration of payment; and premiums are subject to change as long-term care costs increase.

A recent study from the Center for Retirement Research at Boston College reviewed long-term care insurance and revealed some staggering statistics.

More on the study

The study, Long-Term Care: How Big a Risk?, reviewed data from the National Long-Term Care Survey (NLTCS) and Health and Retirement Study (HRS). Based on this information, researchers found that nursing home rooms cost an average of $81,030 annually and home health care costs amount to approximately $21 hourly. Researchers also found that 44 percent of men and 58 percent of women will require at least some form of nursing-home care during their lifetime.

Despite such high costs, researchers found only 13 percent of the population purchases long-term care insurance coverage. One plausible explanation for such a low number of individuals purchasing insurance is the role of Medicaid. However, Medicaid is only available after assets are exhausted. Another explanation is the high cost of coverage - and premium rates that can be increased substantially each year.

Tips when coverage fails

For those who do have long-term care insurance, though, receiving benefits is often a challenge - insurers rely on policy exclusions and limitations to limit their liability, so it is critical to carefully examine and understand the terms of the coverage purchased and when it may run out since most policies sold currently will only pay benefits for limited periods as short as a maximum of two years or will only pay a fixed dollar amount before coverage runs out. Massive premium increases have also led to a high lapse rate, causing policyholders to drop their coverage shortly before it may be needed as the cost for maintaining the coverage becomes unaffordable.

Because long-term care insurance is intended to protect those who are at their most vulnerable and who are in the greatest need, an attorney with experience and knowledge regarding long-term care insurance should be consulted as early as possible to help in navigating through the challenge of securing promised coverage and assuring that the protection promised by long-term care insurance is provided.

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