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  1. Introduction
  2. What Long-Term Care Insurance Protects Against
  3. Who Should Buy Long-Term Care Insurance and When?
  4. The Cost of Long-Term Care Insurance
  5. Finding an Affordable Policy
  6. Rate Increases
  7. How Much Insurance Should You Buy?
  8. Choosing a Long-Term Care Insurer
  9. Using Your Long-Term Care Insurance Policy
  10. The Bottom Line

You price- shop to get the best value on your auto insurance and homeowners insurance, right? You want to make sure you’re getting the best coverage for the lowest price. The same is true with long-term care insurance. Despite its reputation for being expensive, you shouldn’t assume you can’t afford this insurance without shopping around.

Tailor the Policy to Your Budget

The most recent industry analysis of policy pricing published by the American Association for Long-Term Care Insurance (AALTCI), a national trade group, found that rates with one insurer could be almost double the rates from another insurer for nearly identical policies.Rates and discounts vary by provider, so get several quotes. You might be pleasantly surprised that you can get the coverage you want at a price you can afford. In addition, you can tailor each component of the policy to your needs and budget. You could skip the inflation growth, for example, and lower your premiums to anywhere from $1,835 to $2,225 per year, depending on the insurer. 

Skipping inflation growth isn’t ideal, since healthcare expenses have a history of increasing each year, but having less-than-ideal coverage is probably better than having no coverage. As you can see from comparing the annual benefit amounts, though, such a policy might only offer half the coverage you need by the time you use it at age 80. You’ll need to have personal assets you can rely on to make up the difference. Another option would be to purchase a lesser amount of inflation protection, such as 2%. And simple inflation growth of 2% per year will cost less than compound inflation growth of 2% per year. For more ideas, see How to Buy Long-Term Care Insurance Cheaply.

Finding Other Options

Still, long-term care insurance will be too expensive for some retirees no matter what options they select. What should you do if you’re in this situation? Ignore sensationalist headlines like “Why No One Can Afford Long-Term Care Insurance” and get to work finding a solution that’s affordable for you. 

Ask your agent about a catastrophic policy: one that’s relatively inexpensive and provides minimal coverage but will be better than nothing. Similarly, a short-term care insurance policy might offer the same benefits but for less time – enough to perhaps get you through one or two instances of needing help. If you can afford to withdraw a large lump sum from your nest egg, you could purchase an annuity, or a special type of annuity that helps pay for long-term care. (Read The 4 Best Alternatives to Long-Term Care Insurance and LTC Annuities: 2 Safety Nets in 1 for more on these options.)

If you have a health savings account (HSA), using it as a long-term savings and investment vehicle could also help you pay for long-term care – or its premiums. (See How to Use Your HSA for Retirement for details.) A reverse mortgage is another option, though you might be disappointed by how little you’ll receive after accounting for interest and fees. (Read 5 Signs a Reverse Mortgage Is a Good Idea to learn more.)

If you’re married, buying a policy with your spouse can save money. Another way to save money in this situation is to only buy a policy on the spouse you expect to live longest  – the one who is less likely to be able to rely on family for help with long-term care, in other words. It’s a gamble, though, because none of us know when we might get diagnosed with a serious illness or be in a disabling accident.

If this option is available to you, you could save money by purchasing a group policy through your employer or professional organization. Such plans may not require you to qualify medically,  which is great if you have a health problem that would increase your rates or disqualify you in the individual policy market. They also get you a group discount on premiums. Make sure you’ll be able to take your policy with you if you retire or change jobs. If you can’t, you might find yourself without coverage later if you can’t afford the premiums or qualify medically for an individual policy. (For more on this topic, see Take Advantage of Employer-Sponsored LTC Insurance.)

Tax Savings

A long-term care policy can either be tax qualified or non-tax qualified. If you purchase a tax qualified policy, you can deduct part or all of your premiums as a medical expense on your tax returns.

To benefit from this deduction, first, it has to make financial sense for you to itemize your deductions on Schedule A – something many older people don’t do because they’ve paid off their mortgages, and mortgage interest is one of the biggest deductions many taxpayers take. If you take the standard deduction because it results in a lower tax bill, a tax-qualified policy won’t give you tax savings.

Second, you can only deduct the medical expenses that exceed 10% of your adjusted gross income (or 7.5% under some circumstances – for instance, if you or your spouse are 65 or older). That means unless you have a low income, high medical expenses or both, you might not see much benefit from being able to deduct your medical expenses, even if you otherwise benefit from itemizing your deductions. Take note: Lower medical tax deductions for seniors end on December 31, 2016, as explained in 65 or Older? Have Elective Surgery This Year.

If you’re self-employed, though, you can deduct your premiums as a business expense even if you take the standard deduction.

Another benefit of a tax-qualified policy, and one that will matter to more people, is that the benefits it pays out won’t be considered taxable income. If you’re in the 15% federal tax bracket when you receive a year’s worth of benefits worth $100,000, you’ll save $15,000 that could have gone to Uncle Sam.

That being said, sometimes non-tax-qualified policies have more generous benefits. Compare the options available to you and consult with an independent financial advisor (one who doesn’t earn a commission when you buy a long-term care policy) to figure out which option will save you the most money in the long run.

Talk to a long-term care insurance agent to get a quote based on your age, location, health and coverage preferences, and see how they can tweak a policy to make it fit your needs and your budget. You can also comparison-shop rates from multiple companies at once with websites like LTCTree.comPrepSmart.com and aaltci.org (the American Association for Long-Term Care Insurance site). Your state insurance department may also offer an online tool for estimating your premiums, like this long-term care rate estimator for California.

The next chapter describes how often and by how much insurers can raise your premiums.

Rate Increases
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