Is long-term care insurance a good deal?

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Dear Dr. Don,
As a retirement tool, is long-term care insurance a wise investment?
— Doubtful Dave

Dear Dave,
That’s a great question. Long-term care insurance, or LTCI, is designed to cover the costs of long-term care services that, for the most part, are not covered by traditional health insurance or Medicare. There are a lot of options available in structuring a policy, so I’m going to direct you to the Department of Health and Human Services website LongTermCare.gove to learn the basics about these policies and for alternate strategies to funding long-term care.

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LTCI is a policy best suited for the middle class. High-net-worth consumers can raid their portfolios to pay for long-term care. The poor will qualify for Medicaid benefits without needing to spend down their assets.

There’s a fair amount of uncertainty concerning these policies. Rate hikes in insurance premiums have been common. Some insurance companies, like MetLife, while still serving existing policyholders, have stopped writing new policies. Policy owners worry about paying premiums over many years only to have their claim denied when they seek to collect policy benefits.

One bright spot is the public-private partnership that many states have adopted. From the Department of HHS long-term care information website:

A Partnership Program is a collaboration or “partnership” among a state government, the private insurance companies selling long-term care insurance in that state, and state residents who buy long-term care Partnership policies. The purpose of the Partnership program is to make the purchase of shorter term more comprehensive long-term care insurance meaningful by linking these special policies (called partnership qualified, or PQ, policies) with Medicaid for those who continue to require care.

Something new on the horizon is the Community Living Assistance Services and Supports, or CLASS, Program. CLASS is a national voluntary insurance program that will give most working adults a new option to pay for services and support to help them remain independent. It will be available after October 2012. You can learn more about CLASS on the Department of HHS website, “Administration on Aging.” Depending on your age, health, and planned retirement date, it could be worth waiting to see the projected costs and benefits of CLASS before contracting to buy traditional LTCI.

Insurance companies are selling life insurance policies and annuities as alternatives to a LTCI. The Bankrate feature, “Long-term-care insurance does double duty,” explains how this works.

If you want to get this insurance in place prior to the rollout of CLASS, I’d suggest working with a fee-only financial planner to discuss your need for long-term care insurance and the different approaches you can take to meet that need. The Bankrate feature, “Financial planners: Not just for millionaires anymore,” can help you decide on a planner.

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