Long-Term Care Insurance: The Basics
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Few individuals or families actually plan for disability and dependence in later life. Sadly, the lack of planning and self-education often results in lost opportunities to prepare for potential disability. Without the planning and discussion of these issues, we are often forced to learn quickly about available options after a traumatic accident, diagnosis of dementia, or loss of ability to care for oneself. While many of us are emotionally resilient, we usually are not financially resilient.
Its surprising that so few families plan for long-term care given the high probability that our aging loved ones will ultimately need it. Perhaps it has been out of mind because it has been out of sight. With the wave of aging parents of Baby Boomers, it will finally come into focus. Consider that two in ten people over age 50 will require long-term care, four in ten people over age 65, and seven in ten people over age 75.
Long-term care is generally defined as (but not limited to) in-home health assistance or skilled nursing care in a facility. Services may include assistance with activities of daily living, home healthcare, respite care, care in a nursing home, or care in an assisted living facility. Some definitions include the assistance of care management professionals who help to coordinate and monitor care. Activities of daily living include eating, bathing, toileting, continence, and transferring.
The financial costs of long-term care have spiraled in recent years. The average cost of nursing home care is $38,000 per year, with some regions and homes topping $80,000 per year. Homecare can range from $50 to $150 per day (depending on the complexity of care required and the availability of skilled staff). When you consider that the average nursing home stay is 2 ½ years, the out-of-pocket costs can be disastrous to most families. The Centers for Medicare and Medicaid Services (a federal agency formerly called the Health Care Financing Administration) provides average cost information on a state-by-state basis.
And now for the bad news...
About a third of long-term care costs are paid directly out of pocket by families from their personal savings and the sale of assets like stocks and their homes. Individuals who qualify for Medicaid (after becoming impoverished) may receive coverage for some homecare or nursing home costs. Contrary to popular belief, Medicare and supplemental Medicare insurance do not pay for long-term care. Medicare only pays for a small amount of short-term nursing home care, not the years of care required by many aging adults. Increasingly, individuals are using private long-term care insurance to pay for anticipated expenses that are not covered by Medicare.
Long-Term Care Insurance Alternative
Individuals planning for future long-term care needs (either
because they have seen a loved one require expensive care, or because they have a
comprehensive financial plan in place) have four options:
When deciding on which alternative is best for you, most experts point to ones age and personal assets as the keys. According to Long Term Care Quote, an insurance broker in Arizona, if you're aged 50 or older, relatively healthy, and have a net worth of between $100,000 and $1.5 million, you should seriously consider private long-term care insurance. When an individual gets older, the insurance premiums rise accordingly, so it may make sense begin paying into a policy earlier rather than later.
Long-term care insurance is sold by private insurance companies and usually covers medical care and non-medical care to help individuals with their personal care needs, such as bathing, dressing, using the bathroom, and eating. While private long-term care insurance policies are not new, they have received added attention because of growing concern about future healthcare needs, as well as recent laws that impact the tax status of the benefits offered under these plans.
In 1996, the U.S. Congress passed a law that allows the premiums charged for a long-term care policy to be deducted as itemized medical expenses on federal tax returns. According to the Internal Revenue Service, if an individual pays more than 7.5% of their adjusted gross income on medical expenses (including long-term care insurance premiums), they can claim those expenses as deductions. Some special long-term care insurance policies are designated as tax-qualified, which makes the benefits themselves tax-free. All other non-qualified policies require you to pay additional taxes based on the value of the benefits that you receive.
Long-term care insurance should be considered within the context of a comprehensive plan. That means individuals should consult with their financial and/or elderlaw advisors to see how the inclusion of an insurance policy would impact their overall estate plan. Paying a few hundred dollars for a lawyer to read and explain the policy to you is well worth it if you are at all confused or skeptical. Getting a second opinion is common sense.
Types of Long-Term Care Insurance Policies
Most long-term care insurance policies are based on a concept that gives an individual access to a pool of money in exchange for the payment of monthly premiums over the years. Insurers use complex actuarial formulas to predict how many people will need to use the money and how much interest they will earn on the premiums. In the future, insurers may develop novel types of policies based on their experiences with this type of product or the government may change tax laws again.
Policies generally have four key areas that the individual
should consider and compare, according to Long Term Care Quote:
The individual buying the policy can choose virtually any combination of benefits, deductibles, or inflation protection options. Choosing the maximum amount under any of these areas will raise the cost of your policy. Consult with your advisor(s) about which areas are most critical to you, and what cost you are willing/able to afford. There is no standard long-term care insurance policy, so be sure to read the fine print!
Insurance Shopping Tips
The best way to find a long-term care insurance policy is to shop around. Either you can do the legwork yourself by individually contacting reputable private insurance companies, or you can work with a broker who markets various policies and collects a commission on sales. You may also speak with a legal, financial, or care management professional who specializes in eldercare matters. Use these consultations as opportunities to educate yourself before making a purchase.
How to shop
What to look for in an insurer
What to look for in a policy
Is Long-Term Care Insurance Right for You?
Review your needs and get a free quote from ElderCare Online's Long-Term Care Insurance Analyzer.
Shoppers Guide to Long-Term Care Insurance from National Association of
Insurance Commissioners http://www.naic.org
Care Insurance Made Simple by Les Abromovitz
Available from ElderCare Online www.ec-online.net ©2002 Prism Innovations, Inc.