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Long-term care insurance depends on need


As more and more baby boomers approach retirement age, concerns about their own disability and illness and that of their elderly parents have taken center stage.

Key Points

Q: As I approach retirement, I am contemplating buying long-term care policies for my elderly father and myself. What do I need to know?

The need for long-term care (LTC) is generally defined by an individual's inability to perform the most basic activities of daily living, such as bathing, dressing, eating, toileting, continence, and generally moving around. Many resources or methods are available to pay long-term care costs, the simplest being payment "out of pocket." Unfortunately, with long-term care costs continuing to increase dramatically, this method has become financially burdensome and, frequently, cost prohibitive. This has created a greater demand for shifting the risk to a private insurance company via the purchase of long-term care insurance.

These are just some of the many factors to consider when implementing an LTC insurance program. As is the case with other types of insurance, policy features must be compared and weighed. Typically, the more benefits included in the policy, the higher the premium.

Q: I'm confused. What are the differences between "income," "rate," "yield," and "compounding"?

A: Many investment vehicles have an income component. Income can be derived from interest (bank savings accounts, certificates of deposit, and bonds) or dividends (common stocks and mutual funds). In the case of bank accounts and mutual funds, you are given an option of either receiving your income in the form of a check every month or every quarter (depending on the actual investment) or reinvesting the income in the original investment. The latter is referred to as compounding.

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