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A Long-term Care Insurance Primer
As millions of Baby Boomers head into their retirement years,
it's surprising how few actually know that the government
provides little more than a few weeks of financial support for
home-based or nursing home care when the average person needs it
for at least a year.
A 2006 Genworth Financial Survey says the national average
private room rate at a nursing home — the most expensive care
option — was $194.28 per day/$70,912 annually.
Long-term care insurance (LTC) may be one solution for those
who need to bridge the gap between their savings and the actual
costs they'll face.
Determining and paying for long-term care is almost too
complex a topic to be covered in a short article like this,
which is why it makes sense to discuss your individual situation
with a CERTIFIED FINANCIAL PLANNER™ professional. Here are
some of the questions you need to answer before investing in
long-term care insurance or other options:
What resources do you have? We're not just talking
about money here. While care giving puts a strain on family,
it's important to consider whether family and friends are truly
willing and able to help with your care, which can provide a
considerable financial and emotional benefit. Also, if you live
in a community with reliable volunteer resources to help, that's
something to note, though today's services may not be there
tomorrow.
How old are you and your spouse and what's your health
history? People in good health purchasing long-term care
insurance at the age of 55 usually get the most affordable deal
in LTC insurance. But an individual's family health history and
current health status are the real determinants of what your LTC
insurance policy will cost — or if you'll qualify for coverage
at all. Also, it's important to note that 40 percent of
long-term care is provided to individuals between the ages of 19
and 65, so the need for care can strike at any time.
Are you a single female? Again, personal and family
resources come into play here, but since women typically live
longer than men — and they still earn less on average than
men — women should take a heightened interest in providing for their
long-term care safety net. Long-term care insurance might be a
good solution given their other investments and their health
history.
What types of services are covered? Over the course of
time, long-term care policies have evolved to place more
emphasis on home-based care or assisted living, since most
people would choose to recover or live out their last days in a
familiar environment. A basic LTC insurance policy pays for
assistance with activities of daily living including eating,
dressing, bathing, toileting, incontinence, and transferring
(bed to chair, etc.). Each policy lists the types of services
that are covered under nursing home care and under home health
care. Homemaker services are generally covered and other
services as listed in the policy.
What triggers coverage? A qualified LTC policy won't
go into effect until the covered individual can't perform two
tasks of daily living for a period, typically 90 days, or when
that person needs substantial supervision related to cognitive
impairment. This is where you have to read the fine print since
some policies are more restrictive than others. More affordable
policies generally take longer to kick in. See if coverage for
other physical ailments is available as part of the policy and
what per-diem or monthly allowances are offered.
What if I never want to go to a nursing home? The idea
is to cover every eventuality. The best-designed LTC policies
will pay the same amount of benefit whether care is received in
a long-term care facility, an assisted living facility, an adult
day care center, or in the home. Some policies do offer reduced
percentages for home health care versus nursing home care, but
it's a better idea to keep full percentages on home health care
benefits since most people would rather stay in their homes.
What's the record of particular companies in this
business? Over the past generation, more companies have
gotten involved in the LTC insurance business, and it makes
sense to see not only who the leaders are at the time you're
buying and what they're offering, but how financially healthy
these companies are and have been over the course of time.
You've probably heard of insurance companies that have gone out
of business and stranded customers. There's no restriction on
that happening with LTC providers, so check their ratings and
financial history very carefully.
April 2008 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
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