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Don't Be Shortsighted on Long-Term Care

Is long-term care insurance for you? These tips will guide you through the maze.

By Mary Rowland

Illustration by Kara Fellows

The statistics are frightening. As baby boomers age, more of them are expected to spend time in a nursing home. The Department of Health and Human Services projects that 65-year-olds have a 40 percent chance of entering a nursing home in their lifetime. Nursing home care now costs an average of $158 per day, and that's bound to rise.

These scary numbers have whipped up interest in long-term care insurance, a market that can be treacherous to the uninitiated. Long-term care insurance is still relatively new—coming to market in the last 25 years or so—and the policies can seem complicated and daunting. If you are looking for a policy, you need to be armed with facts. Here are some tips from the experts:

Age 55 is a good time to consider buying a policy. After the early 60s, initial premiums increase significantly.

Don't compare policies based simply on price. Some companies have entered this market only to withdraw within a few years because they've found it too difficult. You want an insurer that's committed to the market and has a reputation for treating policyholders fairly. Check A.M. Best, Standard & Poor's, Moody's and Weiss for company reputation. To check claims-paying experience, go to the National Association of Insurance Commissioners.

Study policy terms carefully. Most policies pay when the insured is unable to perform two or more activities of daily living, such as bathing, dressing, or eating. Many frail, elderly people who need help do not qualify under that definition. You should be certain you understand what you're buying before you actually need it.

Most policies provide a daily benefit for a specified number of years. Daily benefit limit and benefit period are key variables in a policy. To determine what daily limit you need, check the cost of a nursing home stay in your area.

Benefit periods range from one year to lifetime, with premiums going up as the benefit period increases. The waiting period before benefits begin also varies, with premiums going down as the waiting period increases. Don't increase the waiting period too much just to save money. Part of the value of the insurance is knowing that you have some protection. If you're forced to wait six months to a year before you begin to collect benefits, it can seem interminable.

Insurers can raise premiums for an entire class of policyholders. Make sure you understand under what conditions your premiums can change. Some experts suggest buying a policy that will be paid off in 10 years to avoid the likelihood of premium increases.

Get inflation protection for your coverage. Five percent is typically recommended. There are generally two types of inflation protection: the compound interest option and the simple interest option. If you're 70 or older, the latter may be the more sensible and economical option.

Before buying long-term care insurance, you'll need to make a number of decisions about which policy terms and features are best for you. Be prepared to do your own research.

For more: You can get a free copy of A Shopper's Guide to Long-Term Care Insurance from the National Association of Insurance Commissioners.

Apartment Shopping 101

Illustration by Dan Yaccarino

Just got that diploma? Before you shop for a new apartment, you'd be wise to hit the Web for a little research.

First, you need to figure out how much you can afford to pay for an apartment. A rule of thumb is to plan on spending no more than 30 to 35 percent of your gross (before-tax) income, but that ignores other factors such as your credit card bills or car payment. For a more accurate picture, go to Springstreet.com and use a financial calculator.

Once you're plugged in to the Internet, you can find an apartment just like you find an airline fare or a rental car. And, if you're thinking of relocating, it's not a bad idea to look up the average cost of an apartment in your new location, which you can calculate at springstreet.com. For example, the average two-bedroom apartment in Richmond, Virginia, costs $683 a month, a little more than the $672 average in Tucson, Arizona, and $372 a year more than the $652 in Columbus, Ohio. But watch out if you've got your eye on Boston, where the average two-bedroom rents for $2,287!

Once you've found your ideal spot, you can pick up decorating tips or even rent furniture (check out www.bfr.com or www.rentfurniture.com).