Six steps to Buying Long Term Care Insurance

Protect your retirement savings from the potentially catastrophic expense of nursing home care. Learn how to compare policies and by buying the long term care insurance plan that is right for you.

A private room in the average nursing home now costs $197 per day.

That's up more than 6% -- or nearly three times the rate of inflation -- from $184 per day last year, according to a study just released by the Met Life Mature Market Institute.

At those prices, even a brief nursing home stay could take a big bite out of your retirement savings, or destroy it entirely if you need long term care for several years.

Receiving 24-hour care at home can cost even more -- $435 per day or an average $18 per hour for a home health aide.

One way to protect your savings against these giant expenses is by buying long term care insurance. But the long term care insurance business has gone through much turmoil in the past few years.

Several big companies, such as Ageon and CNA, stopped selling new long term care insurance policies or surprised long term care insurance policyholders with double-digit rate increases.

Despite this turmoil, buying long term care insurance with a strong insurance company is still the best way to protect yourself against potentially devastating nursing home and long term care costs.

For many people in their 50s and 60s, buying long term care insurance becomes a key part of their retirement planning strategy -- especially if they've seen relatives' nest eggs depleted by nursing home bills or their long term care choices limited by lack of money. Some baby boomers are even buying long term care insurance coverage for their parents if they're still healthy enough to buy an affordable insurance policy.

Here's what to look for in a long term care insurance policy:

Start with quality companies. No long term care insurance company can guarantee that its rates will remain the same forever, but a few big companies -- such as John Hancock, Met Life and Gen worth (formerly GE Financial) -- have been in the long term care insurance business for years and haven't increased premiums for their current customers so far.

These firms often charge a bit more than some competitors, but financial advisors tend to recommend these long term care insurance companies for their stability.

When buying long term term care insurance please comparison shop. Each long term care insurance company will offer different discounts and a few variations in insurance coverage (some offer a zero-day waiting period for home care, for example, regardless of the waiting period you choose for the rest of the coverage).

If you're offered the option of buying long term care insurance through work, compare the rates and coverage to a long term care insurance policy available in the marketplace. If you're healthy, you may get a better deal buying long term care insurance on your own -- and could lower your insurance rate even further if you qualify for a spousal discount.

Find out how much coverage you'll need. Nursing home costs can vary a lot from city to city -- from $341 in Stamford, Conn., to $102 in Shreveport, La. Find out how much local nursing homes charge and check out the cost of buying in-home care, too.

Add inflation protection. This is especially important if you're buying long term care insurance in your 50s or 60s. "Most people do not collect on their long term care policies until they are in their 80s," says Marilee Driscoll, author of The Complete Idiot's Guide to Buying Long Term Care Insurance (Alpha Books, $13.98). If nursing home costs increase by about 5% per year, one day in a nursing home could cost more than $500 in 20 years - leaving a $192 daily benefit (this year's average) to cover less than half of the cost.

Minimize the waiting period. You will be given the choice of buying long term care insurance from a wide range of waiting periods before benefits kick in -- often ranging from immediate payments to 360 days. The longer the waiting period, the lower your premiums, but a long waiting period (also called the "elimination period") also means you'll have to pay a lot of money out-of-pocket before the benefits start. If you pay $500 per day for a nursing home stay in 20 years, for example, a 180-day waiting period would cost you $90,000 before getting an insurance payout. It's generally more cost-effective to buy a lower waiting period, such as 60 or 90 days.

Buying long term care insurance: The best choice for the length of the policy. You're also given a wide range of choices for the benefit period, which is the amount of time the policy pays out. Benefit periods often range from two years to your lifetime.

Increasing your benefit period from three years to lifetime could double your annual premium, so you should weigh the odds that you'll need long lasting care versus the extra price you'll pay for buying long term care insurance coverage with the expanded benefits. The average nursing home stay is less than three years, but those averages include people who are in a nursing home for just a few weeks after a hospital stay and others who are in the nursing home for a decade or more.

These statistics do not include the home health care, assisted-living facility care and informal (unpaid) care received elsewhere.

Most people are buying a three-year or five-year benefit period, but it may be worthwhile to buy a longer benefit period if you have a family history of Alzheimer's or some other chronic disease.

If you're trying to save money, We recommend buying a shorter benefit period rather than extending the waiting period.