The statistics are compelling: About 40% of the people in nursing homes today are younger than 65. If you live beyond age 65, there’s a 70% chance you’ll need long-term care. The nationwide average cost of such care is $204 per day or roughly $6,000 a month. What’s your plan to deal with that cost? “To people who say they don’t have a plan, I say, ‘well, yes you do,’” says Linda Forkey, a presales coach with Minneapolis-based Newman Financial. “It’s your investments; it’s your retirement plan; it’s your home, your cabin, your boat.”

If that’s a plan you’d rather not follow, consider purchasing long-term care insurance (LTC) and transferring your risk to an insurance company. A good LTC policy will pay your expenses for home health care, assisted living, adult day care and nursing home care based on the policy’s limits.

You become eligible for those benefits once a licensed social worker or medical professional certifies that you have either dementia or Alzheimers, or that you can no longer perform 2 of the following 6 activities of daily living or ADLs: 1) get in and out of bed; 2) dress; 3) bathe; 4) feed yourself; 5) go to the bathroom by yourself, or; 6) control your bladder and bowels. “They must also certify that they anticipate these conditions will last more than 90 days,” Forkey continues.

Once you’ve met those conditions, the policy provisions kick in. The typical policy has 4 standard provisions that affect the premium:

• Elimination period. Think of this as a deductible. You can choose different elimination periods, generally ranging from 0 to 365 days. Most people opt for a 90-day elimination period, which means 90 days after you’ve satisfied the two-of-six ADLs requirement, you can begin to receive policy benefits. You only have to satisfy the elimination period once.
  
  

• Monthly benefit. Though some plans are so-called cash plans—they pay you the stated benefit each month—most, including the NEA-sponsored John Hancock plan, are reimbursement plans. The monthly benefit under these plans will be your reimbursable expenses up to your monthly maximum. For example, if you purchase a $6,000 monthly benefit, your insurance will pay you up to that amount each month. If your expenses are only $5,000, the remaining $1,000 carries forward. In other words, if you don’t use it, you don’t lose it. Most LTC plans are tax qualified, meaning that you receive the monthly benefit tax-free.
  
  

• Long-term care account. The amount in your account equals your monthly benefit multiplied by the length of the benefit period. For example, if you have a $6,000 monthly benefit payable for 5 years, your long-term care account equals $360,000. Consequently, if your monthly reimbursable expenses are only $5,000, your account will actually last 6 years. Statistics tell us that most people will not need long-term care longer than 5 years.
  
  

• Inflation protection. Most people add an inflation rider to their policy, so their monthly benefit increases as the cost of living increase. Most companies offer a fixed 3% or 5% compound inflation rider. Though these riders add to the cost of a policy, your premium will not increase each year as the size of your benefit increases.
  
  

The Premium. Your premium will depend on the length of the elimination period, the size of the monthly benefit, the length of the plan and the type of inflation protection you choose. The richer the benefits, the higher the premium. Likewise, the younger you are when you purchase, the lower the premium. For example, a $6,000 monthly benefit for 3 years will cost you $2,400 each year if you buy at age 55. If you wait until you’re 65, the inflation-adjusted benefit will cost $4,270.

Of course, you can self-insure some of the cost of long-term care and insure the rest as a way of keeping the premium manageable. As with health insurance, premiums for similar coverage will vary by state, and they are not guaranteed. Unlike with health insurance, rate increases are rare. “Premiums do not go up every year, and the company has to get regulatory approval,” explains Denise Gott, national sales manager for LTC Financial Partners.

If you’ve been turned down or rated for life or health insurance, you may still qualify for LTC coverage. Each type of insurance is underwritten differently. But should you buy? Well, experts say that if you have $250,000 in assets and make at least $40,000 a year, you should seriously consider it. “And if you need long-term care, do your kids live on the other side of the country or would they be able to quit their jobs to take care of you,” Gott says. “And do you really want them helping you in and out of the shower and dressing you?” The answer to such questions may drive your decision more than the premium. When you add it all up LTC insurance may be the better plan.