Making Sense of Long Term Care Insurance
By Cheryl Smith, MA

Although your focus is probably on providing care for your loved one, itís important to think about and prepare for your own future caregiving needs. Long-term care insurance (LTCi) is a hot topic these days as the more than 76 million baby boomers approach retirement. Statistics say that one out of every two elderly Americans will need long-term care, yet unfortunately, most baby boomers have done little in terms of planning for the care they likely will need in the future.

With the increasing population of elderly Americans, longer average life spans and increasing costs of health care, itís wise to consider LTCi as an option for when youíll someday need extra care yourself.

Planning for Long-Term Care

LTCi is a separate insurance policy that covers costs that arise when an individual needs on-going care including home care, hospice care, nursing home care or care in an apartment in an assisted-living facility.

Although LTCi probably isnít high on most Americansí lists of priorities, it probably should be. Statistics show that 72 percent of elderly Americans are impoverished after paying for one year of long-term care.

The average cost of a private room in a nursing home in the U.S. is $69,400 a year according to the Genworth Financial 2005 Cost of Care Survey. And if an individual wishes to remain in his/her own home, versus entering institutionalized care, the national average rate for a home health aide is $18.58 an hour or $446 a day for round-the-clock care.

If you think that the government or your health insurance will cover these costs, youíd better think again.

The majority of long-term care costs are not covered by Medicare or most health insurance plans. Medicare only covers skilled and rehabilitative care (doctors and nurses) and does not cover custodial care including help with activities of daily living (ADLs). Medicaid will cover the cost of care but only after an individual has depleted all their assets.

Many elderly Americans end up relying on family members to provide care. Some end up depleting all their assets and going on Medicaid resulting in a coverage that restricts where an individual receives care. With a little planning and available funds to cover LTCi premiums, most Americans can avoid burdening their family with their long-term care needs and still leave some assets behind.

Options in LTCi

According to financial planners, people should start to think about purchasing a LTCi policy when they reach their late 50s. Although a few employers offer LTCi policies as an optional benefit, in most cases LTCi is a policy youíll need to purchase from an outside company.

Several factors will influence the cost, but the average annual figure for LTCi is about $1,900.

The premium will depend on:

  •     how long you pay out-of-pocket until the policy  

  •     kicks in (often 90 days)

  •     age and current health situation

  •     the amount of coverage you can afford and how  

  •     much youíll need to cover the average costs of

  •     care in your area

Before purchasing a policy, it is important to find a financial planner or insurance agency that specializes in long-term care planning and talk to them about the options.

Some things to consider:

First decide if LTCi makes sense given your current situation. If you have a large amount in assets, youíll probably want to purchase a policy to protect your assets. However, if you canít afford the premiums without changing your current lifestyle, then it might not make the most sense for you.

Make sure that the policy you choose does not have a hospitalization requirement prior to service kicking in. If it does, you might save on premium costs but could end up paying a steep bill before you can access the benefit.

Make sure the policy you choose takes inflation into account. Youíll want a policy that has a compound inflation protection benefit increase (usually around 5 percent) to cover rising prices.

Once youíve decided on the type of coverage and plan you need and can afford, then look at the companies offering such policies. Youíll want to be sure youíre choosing a solid company with a proven track record in LTCi. Established companies include MetLife and Genworth Financial.

Although LTCi is still fairly new, experts predict that its popularity will continue growing as a viable option for preparing for retirement. With government programs in crisis mode, there are several bills pending in congress that encourage people to buy long-term care insurance. In fact, twenty-six states now grant tax deductions for purchasing LTCi policies.

 


 

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