Long-Term Care Insurance: Is It Still Worth the Price?

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One of the biggest fears Americans have about retirement is that at some point, a bout with extensive medical bills and nursing costs will burn though their life savings. To protect themselves, many buy long-term care insurance policies to help cover those expenses. It's a choice many financial advisors have long endorsed.

But in some areas, long-term care insurance premiums have risen dramatically, which means retirees need to reassess whether getting such a policy is really still worth it.

To show the value of long-term care insurance, the American Association for Long Term Care Insurance recently issued a report about how much the industry paid out in long-term care benefits during 2013. The results don't just show the financial value of long-term care insurance; they also show how much the long-term care industry has changed over the decades. Most dramatically, there is now less emphasis on nursing-home care and more on letting people remain in their homes as long as possible.

The Big Business of Long-Term Care

Many Americans incorrectly assume that once they retire, Medicare will cover of all their health care needs. In reality, Medicare provides only limited benefits for skilled nursing care, and what coverage it offers usually lasts for only a short time.

Yet the odds of you actually needing some form of long-term care are high. According to figures compiled by the AALTCI , half of those who get a long-term care policy at age 60 (that includes provisions to pay out immediately for eligible claims) will end up using that policy before they die. Even if you choose a less expensive policy that doesn't start paying benefits until after the first 90 days of care, the AALTCI estimates that 35 percent of policyholders will end up using those policies.

The huge need for long-term care explains why insurance companies paid out almost $7.5 billion in claims for long-term care benefits during 2013. That was a 13 percent rise from the previous year, with benefits going to 273,000 policyholders across the nation.

Moreover, with the AALTCI saying that more than 7 million Americans own long-term care policies either on their own or through an employer, the number of policy claims will almost certainly keep climbing. Another study projects that current benefit payouts will double by 2023 and rise to $34 billion by 2033, as more people start needing to use their policy coverage.

How People Use Long-Term Care

Perhaps the most surprising thing about long-term care insurance, though, is the way that people use it benefits.

The AALTCI study shows that most people are using their insurance policies to avoid having to go to a nursing home, with more than half of all claims paid toward home-provided care. Another 18.5 percent went toward expenses related to assisted-living communities, which offer a lifestyle that allows senior citizens to maintain their independence to the greatest extent possible while still making higher-level skilled services available when needed.

The move toward home-based care marks a huge transformation in the long-term care industry. But it also reflects the wider availability of medical technology.

In the past, even getting home-care services to cover basic needs like bathing and dressing was a challenge. Now , by contrast, portable medical devices make it far easier even to get some skilled services at home -- everything from checking vital signs to performing complex medical evaluations. Specialized agencies now provide patients with a wide range of skilled nursing services in their homes.

How to Be Smart About Long-Term Care Insurance

The problem with long-term care insurance is that it can be hard to understand. As with many types of insurance, you need to be in good enough health to qualify to buy a policy, and the premiums various insurers charge differ greatly. That makes it critical to get multiple quotes.

Yet it's also important to compare policies on an apples-to-apples basis. There are many different underwriting criteria, different policies about how they reimburse for various types of expenses, and different waiting periods before you can qualify for benefits after beginning long-term care. Even the costs for policies from the same insurance company can vary widely.

Finally, be sure to ask about how much your premiums can rise over time. Many long-term care policyholders have gotten shocking rate increases in recent years, as insurers passed on higher-than-expected costs to their customers. That has put many policyholders in the uncomfortable position of no longer being able to afford their coverage after years of having paid premiums without using their policies.

Planning For Long Term Care During Retirement

You can follow Motley Fool contributor Dan Caplinger on Twitter @DanCaplinger or on Google+.

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