Costs of Long -Term Care
Life expectancies have increased significantly and are expected to continue to increase in the future. As people age, they are more likely to develop conditions that limit their ability to live independently. However, it is estimated that only 5% of people between the ages of 45 and 64 have purchased long-term-care insurance (Source: Employee Benefit News, January 1, 2006).
How likely is it that you will need long-term-care insurance? It is estimated that 69% of individuals age 65 and older will need some type of long-term care, with 37% entering a nursing home (Source: The Wall Street Journal, February 22, 2006). Those entering a nursing home face an average stay of 2 1/2 years, with an average annual cost of $74,000 (Source: Investment News, October 10, 2005).
Who needs long-term-care insurance? If your assets, not including your home, equal at least $2 million, you can probably fund long-term-care costs with those assets, although you may not want to deplete your assets for this care. Those with very few assets will probably be covered by Medicaid. It is the people between these two extremes who should consider long-term-care insurance. This coverage may be especially important for women, who tend to outlive their husbands.
If you are considering long-term-care insurance, review these points:
• Purchase the insurance at a relatively young age. You should probably purchase the insurance by the time you are in your 50s or early 60s. After that, the premiums get much more expensive. Also, if you develop a serious health condition, you may not be able to purchase the insurance.
• Check for inflation provisions. Since you may not receive benefits for many years and costs for long-term care have been increasing significantly in recent years, check inflation protection in your policy. Another option is to make sure your policy contains an annual renewal option, so you can buy additional coverage in the future.
• Obtain insurance from a stable insurance company. You want to obtain insurance from a company that is sure to be around for the long term. For information on Insurance Company Safety Rankings go to the ManagingMoney.com Insurance Center. Here you will be able to purchase detailed research reports to assist you in making an informed decision.
• Make sure the policy terms are reasonable. Many people choose a benefit period of three years to cover the average nursing home stay. However, due to the substantial costs associated with long-term care, you may want to select a longer period. Benefits should be paid in as many situations as possible, including skilled care, intermediate care, custodial care, home health care, and adult day care. Review the waiting period carefully to ensure a good balance between premium costs and out-of-pocket costs.
• Review carefully the level of assistance needed to qualify for benefits. Typically, benefits are paid when you are unable to perform two of six activities of daily living, including bathing, eating, using the bathroom, moving back and forth from a chair to a bed, and remaining continent. Typically, benefits are also triggered when a cognitive impairment, such as Alzheimer’s disease, requires substantial supervision.
• Determine how benefits are paid. Some policies pay a set daily amount, regardless of your actual costs. Other policies will only pay your actual out-of-pocket expenses up to a daily limit or reasonable and customary costs. Find out how you prove you are entitled to benefits. Some plans require an in-house doctor to review your health, while others allow your own doctor’s review.
• Consider sharing a policy with your spouse. Some companies now offer policies that allow spouses to share the policy, with a variety of options available.
• Check the policy’s tax status. A qualified policy allows you to deduct a certain percentage of the premium, depending on your age, as a medical expense on your tax return. Medical expenses are deductible to the extent they exceed 7.5% of your adjusted gross income. Also, payouts from qualified policies are received free from federal income taxes.