Long Term Care Insurance

TABLE OF CONTENTS:

1. What is Long Term Care?
2. General Asset Guidelines
3. What protection is needed? Five factors that impact the annual premiums
4. Tax Qualified Long Term Care Insurance Policies

1. What is Long Term Care?

Long Term Care is the day-in, day-out assistance you need when you have a serious illness or disability that lasts for a long time and you are not able to totally care for yourself.

There are now a wide variety of services to meet long term care needs. We are now seeing a continuum of care availability, with more emphasis on Home Health Care. Everybody wants to stay home as long as possible. Nobody wants to go into a nursing home. People are buying long term care insurance so that they can protect their assets and have the option of using a Home Health Care situation if practical. In addition to the care provided in nursing homes or at home, the continuum includes Adult Day Care centers, Respite Care, aid or chore services, and Assisted Living Facilities.

This insurance can help provide the dollars so you have choices and control over where you receive care.

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3. What protection is needed? Five factors that impact the annual premiums:

1. Benefit length. People can buy policies that will pay for long term care benefits ranging from home health care to nursing home care for a minimum of 2 years to a lifetime. Other choices include 3 years, 4 years, 5 years and 6 years. How do you select what is best for you? Should you buy a lifetime plan?

A lifetime benefit period is preferable since illnesses such as Alzheimer's Disease can mean a need for long term care or a nursing home stay of many years. You may not want to purchase less than 4 years because the average nursing home stay is 2 ½ years and a 3-year benefit is cutting it a little too close. Keep in mind that women live longer than men. Thus 4 years may be more appropriate for a man but may not be long enough for a woman.

Consider longevity in your family - if people live a long time, then perhaps a lifetime plan is preferable. If you are in your 50s or 60s, definitely consider the lifetime plan, since the difference in premium between 4 years and lifetime may not be significant. If you are in your 70s, then 4 years may be sufficient.

2. Daily benefit. Policies pay daily benefits that typically range from $50 to $250. You should choose a daily benefit that closely matches local nursing home costs. According to the 2001 CNA Cost of Nursing Care Survey, for room and board costs only, the average daily cost of nursing home care in North Carolina was $127. Some areas, espcially in and around larger cities, can be more expensive. Home health care can be even more expensive, depending upon the amount of use.

BISYS Insurance Services, a large national insurance broker for long term care insurance recommends a daily nursing care benefit of at least 66% to 80% of the prevailing daily rate in your area.

Generally, I suggest to potential buyers that it is not necessary to insure 100% of the risk. You can take part of the risk yourself, thus holding down the premium costs. for example - if nursing homes cost $150 per day in your area, then you may want to take a policy for $200 a day, if you will be able to afford the difference. Remember, most people will still have income from Social Security and possibly from investments.

3. Elimination Period (or Deductible). With many policies, you will be able to decide how soon after qualifying for benefits you can begin receiving them; immediately, 30 days later, or 100 days later, etc. As a general rule, the longer the waiting period, the less expensive the policy is. I suggest selecting the shortest elimination period or deductible possible. For some policies, and particularly if you are buying it at a younger age, there may not be much difference in cost between a shorter and longer deductible.

4. Home Health Care Protection. This kind of protection can be very important. Everybody wants to stay home as long as possible. But in order to stay home, you need to have a support system, such as a spouse or child. The concept of home health care is for a home health care aide to take care of you a maximum of 8 hours a day, with your primary caregiver -such as your spouse -to take care of you for the other 16 hours. Do you need an aide for 8 hours, or for just a few hours, so that your spouse can do some errands and take a break from the draining job of being a caregiver?

5. Is Inflation Protection Available? With the ever-increasing costs of health care, fueled by inflation, it is important that policy benefits keep pace with the costs of services provided. For an additional premium, a number of policies include Inflation Protection, with benefits increasing at 5% compounded annually. Some long term care insurance professionals recommend this additional protection to those ages 65 and younger. For those over 70, some of these professionals feel it is more cost effective to choose a higher daily benefit rather than the inflation benefit.

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4. Tax Qualified Long Term Care Insurance Policies

The federal government is encouraging people to take care of their own long tenn care expenses. In 1996, it passed the "Health Insurance Portability and Accountability Act". This Act provides tax incentives to people who purchase tax-qualified long term insurance plans. These incentives, subject to limitations, include:

1. Long Term Care insurance benefits received by a claimant will be tax free to the recipient (subject to limitations).
2. Long Term Care insurance premiums are deductible as a medical expense for those who itemize ( subject to limitations).

Thanks to BISYS Insurance Services for supplying portions of this text.