January
21st, 2015
While long-term care insurance can be a good
way to pay for a nursing home stay or a home health care worker, it doesn't
come cheap. Annual premiums vary significantly, depending on your age, health,
and the type of policy, but policies can run as high as $5,000 per year. You do
not need to pay that much, however. The following are some ways to reduce your
costs.
·
Shorter
benefit period. The most significant
cost-saving step you can take is to not purchase a lifetime policy. Unless you
have a family history of a chronic illness, you aren't likely to need coverage
for more than five years. In fact a new study from the American Association of
Long-term Care Insurance shows that a three-year benefit policy is sufficient
for most people. According to the study of in-force long-term care policies,
only 8 percent of people needed coverage for more than three years. By
purchasing coverage for three, four, or five years instead of a lifetime, you
can save thousands of dollars in premiums. If you do have a history of a
chronic disease in your family, you may want to purchase coverage for 10 years,
which would still be less than purchasing a lifetime policy.
·
Buy
younger. Long-term care
insurance premiums rise as you age, so the younger you buy, the cheaper your
premiums. Be careful, however, because insurance premiums can, and often do,
increase considerably from your initial purchase price. Even if you have a
policy that is "guaranteed renewable," your premiums can still
increase. For more information, click here.
·
Shared
care policy. If both you and your
spouse are purchasing long-term care insurance, a shared care policy might be
able to give you more coverage for less money. With a shared care policy, you
buy a pool of benefits that you can split between you and your spouse. For
example, if you buy a five-year policy, you will have a total of 10 years
between you and your spouse. If your spouse uses two years of the policy, you will
have eight years. A shared care policy may cost more than separate policies
with the same benefit period, but it will allow you to buy a shorter policy,
knowing that you have a pool of benefits to work with.
·
Longer
elimination period. Most policies have a
waiting period before coverage begins, typically 30-90 days. The longer you
make this waiting period, the cheaper your premiums. Keep in mind, however,
that you will have to pay for your care out of pocket until the waiting period
is over and the insurance begins its coverage.
·
Reduce
the daily benefit. Instead of
purchasing the maximum daily benefit you might need in a nursing home, you can
consider paying for a portion of the daily benefit yourself. You can then
insure for the maximum daily benefit minus the amount you plan to pay. A lower
daily benefit will mean lower premiums.
·
Inflation
protection. Inflation protection
increases the value of your benefit to keep up with inflation and is almost
always recommended. But you can save on premiums by which method of protection
you choose: compound-interest increases or simple-interest increases. If you
are purchasing a long-term care policy and are younger than age 62 or 63, you
will need to purchase compound inflation protection. This can, however, more
than double your premium. If you purchase a policy after age 62 or 63, some
experts believe that simple inflation increases should be enough, and you will
save on premium costs.
You should also remember that your premiums
may be tax-deductible. Premiums for "qualified" long-term care
policies will be treated as a medical expense and will be deductible to the
extent that they, along with other unreimbursed medical expenses (including
"Medigap" insurance premiums), exceed 7.5 percent or 10 percent of
the insured's adjusted gross income, depending on the tax year and the
taxpayer's age.
For more on long-term care insurance, click here.
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