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Addressing long-term care concerns

All of us may have to face the day when we need help to engage in daily activities such as eating and dressing. Higher premiums for insurance has complicated long-term planning for this coverage. However, there are new ways to pay for this care and address escalating costs.

Long-term care insurance does not cover medical expenses but pays for custodial care which can cost up to $100,000 each year. However, many insurance companies miscalculated costs and did not correctly price their policies. Miscalculations occurred because insureds kept their polices longer than the insurance companies expected, and no one predicted a 10-year period of low interest rates which decreased the value of insurance companies' premium-based investments.

Policy holders, despite escalating premiums, usually got a bargain by obtaining important protection at low prices. Polices that were sold years ago have more benefits than can be purchased now. These higher premium costs, however, have led some policyholders to believe that they are limited to the difficult choice of paying higher prices or dropping coverage.

Nonetheless, financial planning and most long-term care policies provide other options. These polices can be modified to reduce premiums by changing benefits or riders. Examples include reducing the inflation rider or shortening the benefit period to keep benefits but lowering premiums.

For those who are not insured with a traditional policy, funding long-term care includes the options of self-funding, reliance on Medicaid or purchasing insurance. Medicaid has the disadvantages of forcing individuals to spend down their assets and relinquish control of their care. However, many still rely on Medicaid because they cannot afford self-funding their care or purchasing insurance.

Insurance companies have developed hybrid products that do not have the risks of traditional polices such as unexpected premium increases. These are usually attached to life insurance or annuities and eliminate premium increases because they are financed with one-time and level premium payments. Hybrid policies also provide benefits, like life insurance, to the insured's heirs if the insured never uses the policy to pay for long-term care.

An elder law attorney can help with this long-term planning. A lawyer may also provide options to help protect assets and provide for future care.

Source: Forbes, "Why the WSJ is wrong about long-term care planning," By Jamie Hopkins, Jan. 22, 2018

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