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One of the more terrifying financial scenarios anyone can imagine is to be old, sick and broke. To guard against that possibility, more Americans than ever are snapping up long-term care insurance to cover the costs of living in a nursing home or having medical assistance in their own homes.

According to the Health Insurance Association of America (HIAA), the number of Americans who have bought insurance for long-term health care has more than tripled over the last decade, from 1.9 million in 1990 to 6.8 million in 1999.

But before you rush out to buy insurance, think long and hard about what you need in a policy -- or whether you need a policy at all. Though long-term care insurance is bound to appeal to the likes of aging baby boomers, the policies are pricey and complicated. If you buy a policy at all, you'll want to make sure you get your money's worth.

Why Would You Need Insurance?

Long-term care insurance has a certain built-in appeal, because the costs of medical care are so high. Annual nursing home costs average $46,000 nationwide, and in some areas the cost can run to twice that amount, according to the HIAA. Even home care costs can add up quickly; an aide visiting your home three times a week for several hours might cost around $12,000 a year.

And contrary to popular perceptions, Medicare isn't likely to pick up the bill. Medicare pays only about 12% of all nursing home expenses, often for short-term care following hospitalization. But it doesn't usually cover ongoing assistance.

Instead, Medicaid, the federal health program for the poor, pays almost half of all nursing home costs, either for people who start off low-income or (more worrisome) for those who end up that way, after they've used up their savings paying for care.

Residents and their families pay the remainder of the nation's nursing home expenses out of their own pockets -- about a third of the total bill.

Who Should Consider Long-Term Care

People with low incomes and little savings shouldn't try to purchase long-term care, because Medicaid probably will pick up their expenses. And in any case, people in such a demographic would have a tough time footing the expensive premiums for the insurance.

At the other end, affluent people may prefer to simply pay out of pocket for any care they may end up needing, rather than shell out for expensive insurance. And that's fine with many financial advisers. "If people say 'I'll self-insure,' I'll accept that," says James Knaus, a certified financial planner for the firm of LaBrecque, Jackson, Price & Roehl, based in Troy, Mich.

Indeed, long-term care insurance might not be worth the high premiums. Frank Gleberman, a certified financial planner and principal of Century Benefits Group, a benefits company in Los Angeles, says, "Somebody in their late 50s who buys the product may live another 25 years. But

long-term care insurance hasn't been around 25 years. So how can the actuaries track the use of the product?"

Moreover, buyers should be aware that some of the brokers hawking long-term care insurance aren't well versed in the details. "There are a lot of people selling it who aren't up to speed on it," says Gleberman, adding that he wants to understand the product better himself before he begins offering it to clients.

The bottom line: If you're interested in long-term care insurance, work with an independent broker who can offer policies from a range of insurers.

Also, before buying this type of insurance, focus on taking care of more pressing financial needs such as retirement planning, life insurance and college expenses for your children.

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Still, long-term care insurance may be a reasonable option for those who would like to preserve their significant assets for their family, rather than dipping into them to cover health care costs. "If you're really trying to preserve the value of your estate for heirs, you may want to consider insuring it with this insurance product. It would be manageable for a high-net-worth individual," says Knaus.

Premiums for the policies range widely depending on your age, the level of benefits you want, and how long you'd be willing to cover costs before benefits kick in. According to the HIAA, average premiums for basic long-term care insurance in 1999 were $409 for a 50-year-old and $1,002 for a 65-year old.

Most long-term care policies are guaranteed renewable: You can keep renewing the policy, provided you pay your premiums on time and told the truth about your health when you applied for insurance.

Although your policy can't be canceled, your premiums could increase. Insurers are allowed to hike premiums on pools of insured people within a given state. (However, an insurer can't raise premiums on an individual policy.)

What to Look For

Long-term care policies typically offer a given amount of dollar coverage per day (around $50 to $400) or per month (around $1,500 to $12,000) of care. Because nursing home costs vary around the country, call around to find out the expenses in the area you'll be living in when you need care. That will help you decide how high your daily or monthly benefit should be.

You can opt to buy benefit coverage for only a few years, or for an unlimited period of time. Younger people -- those in their 50s or so -- should probably aim to get insurance coverage for longer periods than their older counterparts, advises Nancy Morith, a chartered life underwriter and president of N.P. Morith in Princeton, N.J. The logic: someone who's 80 years old probably shouldn't fork over a lot of money for an unlimited length policy, because he's not likely to live that much longer anyway. But if a 55-year-old were to develop Alzheimer's, he'd need care for a long time.

Be sure your policy includes protection against inflation. An inflation rider may tack on 40% to 140% to the cost of your premium, but it's worth the added cost. Without it, inflation in the price of health care could render your insurance coverage useless.

If you're under age 75, AARP recommends that your policy offer 5% compound inflation protection per year. Compounded inflation protection could make sense even for elderly people if they have long life expectancies (for example, if their parents lived to very old ages).

For people closer to the end of their lives, simple inflation protection without a compounding provision is often sufficient. In their remaining years, the cost of care probably won't increase enough to justify paying for compounded protection.

To minimize your premiums, consider trimming back on less important benefits. For example, most policies have a waiting period before benefits kick in. If you can afford to cover the costs of a nursing home stay yourself for the first 90 days or 180 days, you may be able to shave significant dollars off your premiums. (This works on the same premise as major medical coverage, where you agree to pay a high deductible in exchange for lower premiums.)

Look for a policy that doesn't require prior hospitalization in order for you to receive benefits. Also, think about whether you need coverage for services only in a nursing home or also for care you can receive in your own home, an option that's become increasingly popular. Some policies limit coverage to nursing homes only.

Insurance coverage takes effect after you've become unable to take care of what are known as "activities of daily living." The best -- and most expensive -- long-term care policies specify six different kinds of daily activities, such as bathing and dressing yourself, and commence coverage if you're unable to complete as few as two activities. Less generous policies don't kick in until you've become more debilitated.

Making the Decision

Compare policies from several insurance companies before you make a decision, and be sure to confirm anything an insurance broker has told you in the fine print. If you don't see it, assume it isn't true. And ignore what the advertising brochures say.

Also, only buy an insurance policy from a financially sound company. Independent agencies including A.M. Best, Weiss, Fitch, Moody's and Standard & Poor's rate insurers' financial health.

Finally, remember that if you've purchased a policy and decide you don't want it after all, you can cancel it and get your money back within the "free-look" period of 30 days or so. Check with your state's insurance department for more details.