As you get older, it's inevitable that your health care needs will change and medical costs will increase. If you're worried that your future medical expenses will eat into your savings or create a financial burden for your loved ones, it may be beneficial to buy long-term health insurance, also called long-term care insurance. This type of policy offers key health benefits, but there are some potential drawbacks to consider before making a commitment.
One of the biggest advantages of purchasing long-term health insurance is that your assets are protected in the event that you become disabled, are diagnosed with a chronic illness or suffer from a debilitating medical condition. This type of policy pays for medical care over an extended period of time, which may include in-home nursing care or residency at an assisted living facility. If you're not covered by an employer's health plan or you just have Medicare, your out-of-pocket costs for medical expenses could quickly deplete your retirement savings. A long-term care policy can help you avoid hefty medical bills.
Long-term care insurance may also offer some tax benefits to policyholders. The IRS considers premiums for qualified long-term care insurance policies to be deductible medical expenses. According to the IRS, a qualified policy is one that is guaranteed renewable and does not provide a cash surrender value. As of 2013, you could could claim a deduction for medical expenses that exceed 7.5 percent of your adjusted gross income. The IRS caps the amount of long-term care insurance premiums you can deduct based on your age. For 2013, the cap ranged from $350 for individuals aged 40 and under to $4,370 for policyholders aged 71 or older.
One of the most significant drawbacks of purchasing long-term care insurance is the cost. Premiums are set based on age and overall health, which means you could end up paying more if you're older or if you have a serious medical condition. CBS MoneyWatch reports that annual premiums for someone in their 50s could run from $1,000 to $3,000, with rates even higher if you wait longer to buy coverage. If you're not sure you can afford to maintain the cost of the premiums once you retire, you could end up paying for coverage that you may not be able to use.
Another potential drawback is the limitations on the types of medical expenses a long-term care policy will cover. For example, nursing home care or coverage for certain types of medical conditions may be excluded depending on the insurer. Even if these services are covered, there may be strict eligibility requirements that can make it difficult to receive policy benefits. If you incur medical expenses that aren't covered, you may be faced with the option of paying the bill out-of-pocket or foregoing future medical care.
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