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Short-term Long-term Care Insurance? Make
Sure It's a Good Idea for You
As the long-term care (LTC) insurance market has matured over
the past 20 years, features have been added to the costly
policies to make them more attractive. Even the IRS has come
on board, making a portion of the premiums tax-deductible.
Yet with the tougher economy, insurers are looking for ways to
get more consumers in the door — so they're adjusting features
to give people a break on cost.
Enter the "shorter-term" long-term care policy for
individuals who are willing to play the odds. The main change in
such policies is that they eliminate the "lifetime"
feature in favor of a shorter time limit on benefits, usually
between two and three years, currently the length of an average
nursing home stay. These shorter-term plans can potentially cut
the cost of average annual premiums in half, and if couples buy
a combined policy, they potentially may cut the premium cost
further.
The idea of lower-cost LTC insurance is certainly attractive,
but it makes sense to get some advice and ask some very
important questions before committing. A financial planning
professional can help you assess how well prepared your finances
are to sustain a serious long-term illness with a current
national average of $70,000 in annual nursing home bills that
would not otherwise be covered by insurance. In addition, ask:
What's your health like? People in good health
purchasing long-term care insurance in their 50s or younger
usually get the most affordable deal in LTC insurance. But to
some degree, your current health status is no guarantee that
you'll only be looking at 2-3 years of expenses in total. Keep
in mind 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 and may do so more than once.
Are you 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, LTC policies have evolved to place more emphasis on
home-based care or assisted living, since most people would
choose to be cared for in a familiar environment. However, it is
important to review what all home-based as well as nursing
home/assisted care center services may be covered. 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 may be
covered. Also, if you are considering a policy with a fixed
dollar benefit, compare all of these features with a lifetime
policy.
What triggers coverage? Most LTC policies won't go
into effect until the covered individual can't perform two tasks
of daily living for a specific period of time or when that
person needs substantial supervision related to cognitive
impairment, such as Alzheimer's disease.
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.
Discuss these options with a financial planner if you can,
because the amount of your personal assets will be a factor
here.
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.
October 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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