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Long-term care insurance is becoming increasingly important as an element of a long-term financial plan. Like all insurance, it can be very valuable if you need it, but a waste of premiums if it turns out you don't.

As is the case with all insurance purchases, you must decide whether the potential benefit justifies the cost.

Note: A long-term financial plan can provide an excellent context in which to answer this question.

Most long-term care policies are indemnity-type policies, meaning they will pay (up to the policy's limits) for actual charges by the care provider. Some policies, instead of being based on indemnity, pay daily-benefit amounts to the insured rather than paying for actual charges. The latter type of policy offers the insured greater flexibility (e.g., allowing him or her to pay for home care) and less paperwork.

Long-term care insurance policies pay a set dollar amount per day for covered care during the benefit period stated in the policy.

Example: You choose a policy that pays $160 per day for five years. The maximum that policy will pay is $292,000 ($160 per day, times 365 days, times 5 years).

The older the individual when coverage begins, the higher the premium. For instance, premiums for a set amount of coverage beginning at age 70 can be more than three times those that would apply for coverage beginning at age 50.

IMPORTANT: For income tax purposes, medical care includes amounts paid for a qualified long-term care insurance contract. However, the deduction for long-term care premiums is limited, with the amount that may be deducted increasing with the covered individual's age.



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