The Ins and Outs of Long-Term Care Insurance
If you aren't considering the purchase of long-term care
insurance as part of your retirement planning, then your plan
isn't complete. I'm not saying everyone needs long-term care
(LTC) insurance, but I am saying you need to educate yourself
about the issues and decide how you want to address those
financial concerns.
According to a recent MetLife survey, the average cost of a
private nursing home room is about $70,000 per year.
The average stay in a nursing home varies by the type of
condition that put you in the facility. For example, those who
suffered strokes require an average of 21 months of care, those
with cancer average 36 months, and those with Alzheimer's
average 96 months. There are a dizzying array of options and
features you'll need to understand if you are thinking about
buying an LTC policy.
What daily benefit will you need? The higher the daily benefit,
the higher your premium. But you'll need to find a balance
between daily benefit and cost.
How long will benefits last? The typical stay at a nursing home
is between three and five years, so make sure your coverage
lasts for at least that long. Think about your own family's
health history when choosing benefit periods. Have family
members traditionally lived to ripe old ages or had dementia
problems? If so, you may want a longer benefit period. Many
policies offer unlimited benefits, although that gets expensive.
What's the elimination period? The elimination period is
comparable to the deductible on your other insurance policies.
Your long-term care policy won't begin paying out for a certain
number of days. Medicare typically pays for about 20 days. Most
policies start with a 30- to 90-day elimination period, but you
can increase that. The longer the elimination period, the
cheaper your premium. Consider, too, that you may be able to pay
out of pocket for six months or even a year of care. It's the
long haul that might sink the financial ship.
Is the benefit inflation-protected? Go for the guaranteed annual
inflation increases rather than the opportunity to increase
daily benefits down the road. This rider may be more expensive
up front, but you have a better chance of keeping pace with
inflation.
Is the policy guaranteed to be renewable? This language
guarantees that you can continue the policy as long as you pay
your premiums. That includes coverage even if the company stops
selling policies. This language does not, however, guarantee
that your rates won't go up.
What level of care does the policy cover? The policy should
cover all levels of care, both skilled and nonskilled. Nurses
are generally the ones providing skilled care. Nonskilled care
includes assistance with activities that don't require a nurse,
such as bathing, walking, and dressing. You should be able to
use the benefits not only for care at a nursing home but also
for home health care, day care, or assisted living.
Does the policy cover help at home? Some policies will cover the
costs of bringing people into your home to help with physical
therapy, bathing, dressing, walking, and so on. Make sure the
policy doesn't require a prior hospital stay before this benefit
is available. Does the policy cover mental conditions? Sadly,
Alzheimer's disease is a reality for many people. Be sure your
policy includes all types of dementia.
How are premiums waived? A typical policy will waive premiums
after 90 days of skilled care. Check to see if the days must be
consecutive. Also, find out when premiums kick back in if you
get better and go home.
How financially stable is the insurer? Research the financial
rating of the company offering the policy. Check out ratings at
A.M. Best's Web site. Several long-term care insurers have gone
out of business. If you have a policy with a company that goes
under, you still have a binding contract with that company. You
do not have to surrender your contract unless you feel it is in
your best interest.
Is the policy tax-qualified or nonqualified? In 1996, the Health
Insurance Portability and Accountability Act was passed. Part of
that law was a tax distinction for long-term care policies.
A qualified policy allows you to deduct premiums as a medical
expense, up to certain limits, (to the extent all medical
expenses exceed 7.5% of your adjusted gross income). Benefits
from qualified policies are not considered taxable income (up to
a limit of $240 a day for 2005). A doctor must certify that the
insured will be unable to perform two or more activities of
daily living (eating, going to the bathroom, moving from a bed
to a chair, bathing, dressing, or maintaining continence) for
the next 90 days or that the insured has been diagnosed with
cognitive impairment (such as Alzheimer's). All policies issued
before 1997 are considered qualified. The vast majority of
policies issued today are qualified.
A nonqualified policy does not require a doctor's certification
to pay benefits, but they set their own internal triggers of
when to pay out benefits. For example, the policy may not
include bathing as one of the daily living activities (and
bathing is the number-one activity that people need help with).
And you don't get the tax breaks that you would with a qualified
policy. Do your homework on the companies issuing these policies
to make sure they are financially solid.
For the complete article click on T
he Ins and Outs of Long-Term Care Insurance.
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Some online resources for Long-Term Care Insurance include:
Allianz LTC Insurance
GE Long-Term Care
Insurance
John Hancock LTC Insurance
Long-Term Care Insurance from
MetLife