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Long-term care: an expense many Americans will face, P.1

When folks think about how they will pay for long-term-care as they age, there could be a number of reactions. Some will go out and purchase insurance products to protect themselves and their family, and others may choose to forego insurance products and plan on using Medicaid as a fallback if their own assets run out. Others will just throw up their hands, unsure of what they should do.

Whatever one's reaction, long-term-care is a reality many American will end up facing. According to LeadingAge, a lobbying group representing nursing and retirement homes out of Washington, roughly 69 percent of 65-year-old Americans will need long-term-care sometime in their life. And with the number of aging Americans set to more than double by 2040, the need for long-term-care will dramatically increase in the years to come.

Long-term-care insurance, while it would be great to have, can be expensive. One expert in the insurance field said about long-term-care insurance, "The problem with long-term-care insurance is that the wealthy don't need it, because they can afford their own care, and the middle class can't afford it. It's a small sliver of the population who should even consider it."

Companies that underwrite long-term-care policies have, in recent years, had to either raise premiums or stop selling policies because of overestimated lapse rates and consequently have had to pay more in benefits than expected. Even large companies like MetLife Inc. have had to stop selling new long-term-care insurance policies. Other companies have begun selling more hybrid policies, increasing sales as much as 124 percent between 2009 and 2010 in some cases.

Traditional long-term-care insurance will typically reimburse specified expenses or pay a daily cash benefit to those in need of assistance with everyday things like dressing and bathing themselves. Hybrid policies are typically designed so that payments for care come straight from the death benefit, which will reduce the death benefit passed on to heirs. Some policies allow buyers to get their premiums back at any time before they tap into the death benefit. Some policies allow an extension of benefits rider so that up to a certain amount of money will be paid if a policy-holder spends through their death benefit in order to pay for long-term care.

In our next, post, we'll continue to look at this topic.

Source: Businessweek, "Insurers Pair Long-Term Care With Life to Entice Older Buyers," Elizabeth Ody, 19 May 2011.

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