The Basic Components of Long Term Care Insurance

If you’re thinking about buying Long Term Care Insurance, chances are you know what it does. Long Term Care Insurance is designed to shield assets from the rising cost of long term care, which often causes sticker shock to those who are paying out of pocket. Long story short, long term care is not cheap. Far from it, actually, and the cost is growing annually. If you understand the financial risk posed by long term care, it’s likely that Long Term Care Insurance is on your list of things to buy.

So, you know what a policy does, but do you know how it works? There are a few basic components of a Long Term Care Insurance policy that are crucial to understand and be aware of before you make the decision to buy.

1)    Benefit period – The benefit period is the length of time that your policy is slated to last. Typical choices include 3 years, 5 years, and 10 years. Unlimited benefit periods were once an option in the past, but no longer. They were simply not profitable for Long Term Care Insurance providers who found they were taking heavy losses on these types of policies. A few insurance providers still offer 10 year benefit periods, but most have cut the maximum down to 5 years. Choosing your benefit period, like the rest of the components, is crucial to how much your policy will cost. Industry data has found that about 85% of claims last less than 5 years, so a 5 year policy is enough to hedge against the majority of the risk. A 3 year benefit period is a good option, too, if you are trying to make the policy more affordable but still shield from the main risk.

2)    Elimination period – The elimination period is essentially the deductible of your Long Term Care Insurance policy. The elimination period signifies how many days of care you must receive before your insurance benefits kick in. You usually have the option to choose between 0 and 180 days. 90 days is the most common choice because most people can afford to pay for 90 days of care without making any huge changes to their lifestyle. Once the 90 days are up and you are still in need of care, you will begin to receive your benefits from the policy. The elimination period, like most deductibles, has a big impact on how much your policy costs. If you think you can afford to pay for care for longer, you may want to lengthen the elimination period to help shave off some cost off of your premium rates.

3)    Daily benefit amount – The daily benefit amount indicates how much monetary value of care you will receive every day. The average daily cost of care varies by geographical region and city, so it’s crucial to research how much care costs in your area before deciding on your specific daily benefit amount. The average daily benefit amount is $150 per day, but it is significantly more expensive in the Northeast and on the West coast.

Familiarizing yourself with the moving parts of a Long Term Care Insurance policy can help you decide what kind of policy you want and how much you are going to pay for that plan. Other factors that influence cost are your age and your health, so buying when you are younger and still in good health is always the best option. The best time to purchase a policy is when you are in your 50s. Waiting until your 60s will cost you significantly more and can possibly rule out your chances of qualifying for a policy, depending on your health.

To learn more about Long Term Care Insurance and how to know whether or not a policy is right for you, click here.

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