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By Jason Stipp and Christine Benz | 07-31-2014 11:00 AM

3 Ways to Make Long-Term Care More Affordable

As premiums on long-term care policies have increased, investors can pull these levers to keep their budget from breaking.

Jason Stipp: I'm Jason Stipp for Morningstar. The decision about whether to purchase a long-term care insurance policy is a sticky one for many families. Joining me to offer some tips about making this difficult decision is Christine Benz, our director of personal finance. Christine, thanks for being here.

Christine Benz: Jason, it's great to be here.

Stipp: First, what are some of the primary benefits of buying long-term care insurance?

Benz: The big one is that long-term care, should you need it over an extended period of time, can be ruinously expensive. So, if you live in a high-cost metropolitan area, it's not unusual to need to pay $100,000 per year for care in some sort of a long-term care facility. So, that's a big issue. You would need a lot of wealth to be able to pay that money out of pocket--especially for couples where maybe you have a healthy spouse who wants to remain at home and needs assets for his or her daily living expenses and you're also paying the long-term care expenses over there. So, that is the big issue. Having that insurance, which could protect you against at least some of these costs, can provide a lot of valuable peace of mind.

Stipp: And, again, what long-term care insurance covers is something that Medicare does not cover. So, this is why people are so interested in buying this kind of policy potentially.

Benz: Exactly. Medicare covers some long-term care under very specific circumstances, but even then only up to 100 days' worth of care and only partially during those 100 days. So, you need to be very aware of the limitations of Medicare on this front.

Stipp: So, buying a long-term care policy is one way to cover those expenses, but these policies also have some drawbacks.

Benz: They do. And the big drawback is that this type of coverage can be very expensive, as insurers have had to deal with more difficult claims than perhaps they anticipated. The pricing has gone up; it's become perhaps more realistic, but it's harder for the consumer.

The other issue is that if you don't end up needing the coverage, this is money that you've spent on something that you didn't need to. You could have put it into your nest egg. So, those are the big drawbacks.

Stipp: Given this range of issues, you have a few tips to help with people considering a long-term care insurance decision. Your first tip is an interesting one and that is to procrastinate. Why might it help if you don't make a decision just right now?

Benz: Procrastination is almost never a good idea when it comes to your finances. Here, though, I think it's something that people who are maybe on the younger end of the long-term care purchaser spectrum might consider.

The reason is that we have interest rates that are very, very low right now, and that's partly what has caused long-term care premiums to be relatively high. The insurers just haven't been able to earn much on people's premiums coming in the door. I think that, arguably, in a higher-yielding environment that the pricing could get a little bit better for new purchasers.

I would only consider this strategy, though, if I were at the young end of the long-term care purchaser spectrum. So, people who are younger than age 50, maybe in their early 50s, perhaps very early 50s--you wait much longer than that, though, you do risk having higher premiums because there is a greater likelihood that you'll need that type of care. Then, you also risk encountering some sort of a health condition, which could disqualify you from this coverage type altogether. So, there are risks certainly with procrastinating, with deciding not to buy right now.

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