Okay, okay, we get it: Long term care is expensive. It can wipe out a lifetime of savings. And nearly 70 percent of Americans will need it at some point in their lives. Insuring against it may be smart, but is it affordable? How much does long term care insurance really cost? Does it make sense to buy it young, or should you wait until you’re older? How do you get the best deal?

The average cost of a one-year stay in a nursing home now exceeds $77,000 a year, according to an October 2007 study published by the MetLife Mature Market Institute. The cost of living in an assisted care facility is more than $35,000. Insurance spreads those costs across a pool of people—including those who will never need long term care. By sharing the risk with those who pay premiums but never collect benefits, those who end up needing long term care will not have to pay the entire cost.

The other factor that reduces costs is time: By paying ahead, in the form of premiums, the people in the insurance pool give the insurance company the opportunity to invest the money and earn income from it for a period. This income helps the insurer to make a profit. It also increases the amount of money available to pay for care. As a result, time is the key factor when an insurer sets the cost of premiums.

A person who pays premiums for many years gives the insurance company the best chance of offsetting expenses with earnings. Accordingly, the younger the insured starts paying, the lower his or her premiums will be. A 50-year-old who takes out a policy that will pay a daily rate of $150 for four years will pay about $1000 a year in premiums. A 65-year-old will pay at least $2200 a year for the same policy. At age 80, such a policy will cost about $7,500 a year.

The amount of the premium is also pegged to the daily rate the policy will pay. To save money, the insured can reduce that amount. Of course, he or she will be liable for the difference between the amount the facility charges and the amount the insurance company pays. For example, if the facility charges $150 a day and the policy pays only $100 a day, then the insured will have to pay the $50-a-day difference.

A better way to lower premiums is to increase the waiting time before the policy starts to pay benefits, known as the elimination period. A policy that begins paying after 90 days will cost much less than a policy begins paying after only 30 days. If the facility charges $150 a day, the extra 60 days of out-of-pocket expense will cost the insured an additional $9,000. By contrast, reducing the daily rate by $50 a day will cost the insured an additional $9000 in 180 days. If the stay lasts just one year more, it would cost the insured more than $18,000 in out-of-pocket expenses.

The idea is not to have the insurance pay for everything. Rather, the goal is to keep the cost of long term care from wiping out a large sum of money the insured may have accumulated—a retirement account, or example, or the proceeds from the sale of a home. By lengthening the elimination period, the insured is able to keep the premium down while protecting the bulk of his or her assets.

Source: http://www.ArticlePros.com/author.php?Bradley Steffens