Should You Buy Long-Term Care Insurance?

Physician's Money DigestJanuary31 2003
Volume 10
Issue 2

As a financial advisor, a question babyboomers often ask is: Do I need long-termcare (LTC) insurance? This is a complexsubject with few perfect answers.What is right for one will be inappropriatefor another. Your best solution is to meetwith your financial advisor or someonewho specializes in elder-care issues.


With the cost of nursing-home care currentlyranging anywhere from $36,000 to$80,000 per year and likely tripling overthe next 20 years, this is an important decision.Here are some of the guidelines youshould consider in making your decision:

•LTC insurance is most appropriate forpeople with assets between $100,000 and$1.5 million (excluding your home). If yourassets are less than $100,000, you may notbe able to afford LTC premiums and youwould quickly become eligible for Medicaid.With assets greater than $1.5 million,you can probably afford to self-insure.

•Coverage provisions and costs varywidely from policy to policy and companyto company, so plan on doing your homeworkin order to tailor a policy to your specificneeds and budget.

•Today, approximately 80% of nursingcare is received in the home rather than ina nursing care facility. If home care isimportant to you, be sure your policyincludes a rider that covers this benefit.

•Most policies provide a waiver of premiumbenefit that waives further premiumpayments once you begin receivingbenefits. Look for a policy that waives premiumswhether you are receiving care at anursing home or at home.

•The likelihood you will stay in a nursinghome for more than 5 years is less than10%. Therefore, a good buy in LTC insuranceis a policy with a 5-year or less benefit period. Lifetime coverage is availablebut it is much more expensive.

•Be sure to choose a contract thatrequires you to satisfy your eliminationperiod only once. Since you may gothrough several phases of need and recovery,you want to avoid having to satisfy the"elimination period"several times.

•The daily costs of nursing-home carevary widely depending on where you live.Consult with your financial or tax advisorregarding the costs in your area. They canadvise you about the appropriate amountof daily benefit you should purchase.

•LTC premiums are deductible as abusiness expense according to InternalRevenue Service Code Section 162. Ownersin a C-corporation, self-employedindividuals, and those who are greaterthan 2% shareholders of an S-corporationmay want to consider the new "10Pay"policies. With these contracts, yourcompany pays the tax-deductible premiumsfor 10 years after which no furtherpremiums are ever due. Benefits are notsubject to income taxes.


The way insurance companies determineand calculate how benefits are distributedcan vary widely. The more liberalpolicies (ie, indemnity contracts) payfull benefits directly to the policyholderonce you qualify, while more restrictivepolicies (ie, reimbursement contracts)provide reimbursement of actual expensesincurred directly to the healthcare provider. The former puts you in abetter position to negotiate and controlthe costs as well as the quality of yourlong-term care options.

As with all insurance products, youwill want to make certain that youchoose an insurance company that isfinancially sound. Select a company thatis rated AA or better by one of the majorrating companies such as Standard andPoor's, Moody's, or A.M. Best.

Stewart H. Welch III , founder of

the Welch Group, has been

rated one of the nation's top

financial advisors by Money,

Worth, and Medical Economics.

He welcomes questions or

comments from readers at 800-709-7100 or Reprinted with permission

from the Birmingham Post Herald.

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