To help figure out if you're a candidate for a policy, first you need to add up the income and assets—savings, retirement funds, pensions, Social Security, and investments—that you (and your spouse, if you have one) are likely to have for living expenses and to pay for long-term care you might some day need.
Ken Weingarten, a fee-only financial planner in Lawrenceville, N.J., says in his state retired couples who have $2.5 million or more in liquid assets can generally afford to pay for long-term care out-of-pocket, while those with less than $500,000 will probably be unable to afford the premiums on an LTC policy. "It's the people in between who are the most likely candidates for a long-term-care policy," he says. Those numbers will be lower in states where care is less expensive. To find state-by-state costs, check Genworth Financial's 2012 Cost of Care survey, at genworth.com.
If you'd like some guidance through this process, consider consulting a fee-only financial planner, who can run computer models that take into account different scenarios to help you explore your options. You can find a planner in your area on the website of the National Association of Personal Financial Advisors.
How to buy. Start by figuring out how much you should be able to pay out-of-pocket for your care and how much you'd like an insurance policy to cover. If the cost of a nursing home in your area is $200 a day, for example, you might settle on a policy that pays a daily benefit of $120 and plan to pay the rest out of savings.
Couples have the option of a "shared benefit" rider that lets them both draw from a combined pool of funds instead of limiting each of them to a set amount of coverage. For example, a three- or four-year shared-benefit plan provides a pool of six or eight years of coverage they can share.
You also have to decide how long you are willing to cover your own care before the policy kicks in, known as the elimination period. Your options include 30, 60, 90, or 180 days; 90 days is common.
Consider paying extra for an inflation rider to help keep pace with the rising cost of care. But be aware that adding an inflation rider that provides a compound 5 percent increase of your benefit amount could potentially boost your premium by as much as 80 percent.
You'll pay less if you buy a policy before age 60. A plan that pays $3,000 a month for four years with a 5 percent compound inflation option and a 60-day elimination period might cost $2,815 a year for a 57-year-old healthy male. At 62, the same policy might cost $3,248 a year. "After 60, insurers figure we're like cars; our parts are older, start to break down, and cost more to fix," says Owen Malcolm, a fee-only planner in Norcross, Ga. But if you buy a policy in your 50s you could end up paying premiums—including future price hikes—for decades and never collect any benefits.
Also look into state partnership programs. These programs set minimum requirements for private insurance policies that allow you to retain some assets you otherwise would have to spend to qualify for Medicaid if your care costs exceed your coverage. For more information, go to longtermcare.gov and search for "state partnership programs."
Get at least four or five quotes from different companies that are highly rated for financial strength by leading ratings services, such as A.M. Best, Fitch Ratings, Moodys, Standard & Poor's, and TheStreet. To obtain multiple quotes, use an independent agent who works with several insurers. You can search for local agents on the website of the Independent Insurance Agents & Brokers of America.
But don't buy unless you're sure you can afford a premium that may double in the future, says Michael Kalscheur, a fee-only financial planner in Indianapolis. "If not, I'd say you should look at other options to pay for your care," he says.