The growing interest in long-termcare insurance can beattributed largely to the agingof America. According to theUS Census Bureau, the median age in theUnited States was 35.9 in 2003—thehighest ever. This demographic shift isdue to the 76 million Baby Boomers, thelast of which will reach age 65 by 2030.
The US Department of Health andHuman Services estimates that about40% of people aged 65 or older have atleast a 50% lifetime risk of entering anursing home. At a time when the averagecost of a private room in a nursinghome is $192 per day (about $70,000annually) long-term care insurance can beviewed as a solid investment for thosewho have assets to protect or who wantto avoid becoming a financial burden totheir families.
Unlike other types of insurance, inwhich policies are fairly standardized,long-term care policies are complex andvary widely. Virtually every company'spolicy differs on such matters as whoqualifies for coverage, when the policyholdercan begin receiving benefits, premiumcosts, etc. Therefore, before youbegin comparing policies, it is importantto understand some of the basics.
Long-term care insurance is not lifeinsurance, disability insurance, or healthinsurance. Instead, long-term care insuranceincludes a range of nursing, social,and rehabilitative services for people whoneed ongoing assistance due to a chronicillness or disability. Long-term care insurancecan be used by anyone at any agewho suffers an accident or debilitating illness,but it is most frequently used byolder adults who need assistance withessential physical needs, such as bathing,dressing, or eating.
Neither Medicaid, Medicare supplementalcoverage (also known as Medigapinsurance), nor standard healthinsurance policies cover long-term care.That leaves most of us with two optionswhen faced with such expenses: Payout-of-pocket or rely on private long-termcare insurance.
Most long-term care policies are"expense-incurred," meaning they pay afixed-dollar amount toward the cost ofdaily care. Policies tend to cover a varietyof care settings, including nursing homes,home health care, assisted living facilities,and adult day care. Premium costsincrease depending on your age at thetime of enrollment, so the younger youare when you purchase a policy, the lowerthe premium you're likely to pay.
What to Look For
When shopping for long-term careinsurance make sure you take your timeand compare the features of severalpolicies. In general, pay special attentionto the following:
• Company reputation and legitimacy.Make sure the insurance companiesunder consideration are licensedin your state and carry favorable financialratings from well-known ratingsagencies such as AM Best Company,Duff & Phelps, Inc, Standard & Poor'sInsurance Rating Services, and Moody'sInvestor Services, Inc.
• Coverage parameters. Policies willdiffer in the types of services they support.Some cover nursing home care,while others cover custodial or personalcare in a variety of settings such as assistedliving, adult day care, and home healthcare. Some include a combination of services.Be sure to choose a policy that bestmeets your potential needs.
• Benefits payout. How much doesthe policy pay per day for care in a particularsetting (eg, nursing home orassisted living)? How does the policypay out services (eg, a fixed dailyamount or as reimbursement for thecost of care up to a daily maximum)?Does the policy have a maximum lifetimelimit? If so, what is it for nursinghome care? Home health care?
• Eligibility. Does the policy use "benefittriggers" to determine when you willbe eligible to receive benefits? Such triggerscould include activities of daily livingthat the insured needs help with; cognitiveimpairment, such as Alzheimer's disease;or a prerequisite hospital stay for nursinghome benefits. The number of activities ofdaily living covered is state specific. Pleasecheck with your financial advisor for specificinformation.
• Benefits protection. The policyshould include an inflation adjustmentfeature to ensure that benefits stay in linewith rising care costs. Additional protectionsinclude a "guaranteed renewable"clause, which states that the policy cannotbe canceled when you get older or if yousuffer physical or mental deterioration,and a "nonforfeiture" benefit, which ensuresthat some portion of your benefitsare still available to you if you cancelyour policy or unintentionally let it lapse.
• Tax implications. Most long-termcare policies sold today are federally tax-qualified,which means premiums paid, aswell as out-of-pocket expenses for long-termcare, can be applied toward the7.5% medical expense deductions containedin the federal tax code. Additionally,long-term care benefits receivedare not taxed as income up to a certainlimit. Consult with a tax advisor to learnmore about the tax implications of long-termcare insurance.
is the president of
Apollonia Financial Services in
Elkins Park, Pa. All securities
offered through Linsco/Private
Ledger, member SIPC. Past performance
is no guarantee of future
results. The information presented is the opinion of
the author and not Linsco/Private Ledger. Mr.
Kleiman welcomes questions or comments at 800-242-1760 or firstname.lastname@example.org. This article is
not intended to provide specific advice or recommendations
for any individual. Consult with your
financial advisor if you have questions.
Scott J. Kleiman