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Thinking long term: Do you need old-age insurance?

Are you insured against old age? It's a fact of life that is far more likely to impact your finances than a car accident or house fire. While paying for auto or homeowners' insurance often seems like a no-brainer, many people question whether buying long-term care insurance is worth it.

Unlike traditional health insurance, long-term care insurance is designed to cover long-term services—such as assisting with "activities of daily living," including bathing, dressing and eatingfor those who can no longer take care of themselves.

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"Ultimately, what you're protecting is a portfolio, a standard of living or the assets you plan to leave for your children, which can be ravaged by long-term care or the costliness of going into a nursing home," said certified financial planner James J. Burns, founder and president of wealth-management firm JJ Burns & Co.

Long-term care basics

Government statistics project 70 percent of Americans age 65 and older will eventually need long-term care, either at home or in a nursing home. According to the Department of Health and Human Services, the average yearly cost for home health aide ranges from $34,000 to $57,000. A private nursing-home room ranges from $55,000 to more than $250,000 a year, depending on the state and the facility.

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A single, relatively healthy adult in his or her 50s can expect to pay about $2,000 a year for around $160,000 in benefits—which would eventually lead to about $330,000 in total benefits by the time you're 80, according to the American Association for Long Term Care Insurance. Most people buy long-term care insurance between ages 50 and 60. Generally, the younger you are, the less costly the premiums.

Anthony Ferrera, founding partner of accounting firm Ferrera, DeStefano & Caporusso, is in the process of making this big decision. "You have to ask yourself if you want to spend money today on insurance or on things that you want today," he said. Ferrera is doing the math to ensure that paying for this type of insurance won't alter his family budget or family's standard of living too much.

Pricing long-term care

The cost of a long-term care policy varies greatly based on:

Age at the time of purchase.
Policy type.
Coverage selected (years covered, and nursing home vs. at-home care).

So it's important to shop around and compare policies.

Where to buy long-term care insurance

As more and more insurers get state approval to raise rates, it is becoming increasingly more costly to buy long-term care insurance on your own. Most people buy long-term care insurance directly from an insurance agent, a financial planner or a broker. However, it may be more cost effective and easier to qualify for it through your employer if it is offered.

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Contact several companies and financial professionals before you buy a policy. Don't just focus on the premium. Be sure to compare benefits, types of facilities covered, limits on your coverage and what is not covered.

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