| Important
Questions About Long-Term Care
|
What
is Long-Term Care?
Long-term
care refers to the need required, primarily due to
aging, for assistance performing the basic activities
of daily living, including eating, dressing, transferring,
toileting and bathing. Long-term care insurance refers
to an insurance policy purchased today to cover the
cost of home care, nursing home care or care in an
assisted living facility that may be needed in the
future once these activities can no longer be performed
independently. Of course, nobody likes to believe
that one day they might need such help; however, we
believe one should approach the decision to buy long-term
care insurance strictly as a financial decision rather
than an emotional one.
Why
should you consider Long-Term Care?
According
to a recent AARP report, "...the average length of
home care for a severely dependent person who is over
70 is between five and six years...," and research
has shown that by the time we are 65, we have a two
out of five chance of needing nursing home care at
some point in our life. On average, such care can
cost between $36,000 to $70,000 per year. Just five
years of care can cost almost a half million dollars.
That is a lot of hard earned money that can be quickly
depleted.
Long-term
care insurance is designed to protect your assets
and can be purchased for a small amount each year.
Factors including age, daily benefit amount, years
of benefit, and deductible play a role in determining
the cost of the premium. Depending on an Individual's
needs, these factors can be adjusted to modify the
cost to make the premiums more manageable. Of course,
the greater the benefit, the greater the amount of
assets it protects. For example, a $100 per day benefit
for 5 years of coverage will protect $182,000 of your
assets ($100 x 365 days x 5 years). The younger the
applicant, the less expensive the coverage will be,
and the healthier the applicant, the better the chances
of qualifying for a policy.
What
about Medicaid?
Besides
not being an attractive option, Medicaid is not available
to most people. Of course, for someone who is sure
to qualify for Medicaid benefits it may not make financial
sense to pay for a long-term care insurance policy.
However, new legislation in 1997 has made it a felony
to give away one's assets solely for the purpose of
qualifying for Medicaid.
Just
like homeowner's insurance, one hopes never to need
to collect on a policy. However, it makes good financial
sense to pay a small percent of your assets each year
to protect them.
Can
you find the right policy?
Shopping
for long-term care insurance can be very confusing
if you are not familiar with the terminology or language
of the insurance. It is important to understand the
provisions of a long-term care policy, especially
since many of these provisions can be adjusted to
either increase or decrease your premium.
How
do you qualify for benefits?
Under
most tax qualified policies, you will qualify for
benefits if you are unable to perform (without substantial
assistance) at least two of the activities of daily
living, which generally include dressing, eating,
transferring, toileting and bathing. You may also
qualify for benefits if you require substantial supervision
to protect yourself from threats to health and safety
due to a severe cognitive impairment.
The
daily benefit is the most your policy will
pay on any one day. For example, a policy with a $100
per day benefit will pay up to $100 per day toward
the cost of long-term care.
The
benefit period determines the total value of
the policy. Most policies offer various benefit periods,
ranging from one year to lifetime. The policy's maximum
benefit is the daily benefit X 365 days X the benefit
period. Obviously, the greater the benefit period,
the greater the maximum benefit and the greater the
premium.
The
elimination period is the period of time during
which you must qualify for benefits and receive care
before your policy begins to pay benefits. This can
be thought of as a deductible. Most policies offer
a choice of elimination periods, which can range from
0 days to 180 days. The shorter the elimination period,
the smaller the deductible and the greater the premium.
What
are other important features?
It
is important to choose a policy that is guaranteed
renewable for life. This means as long as you pay
your premiums when due, your policy cannot be cancelled
for any reason.
You
may want to consider an inflation option, which will
provide for increases in the daily benefit to keep
pace with inflation. This option can be provided for
in many ways, depending upon the policy. This option
can increase your premium substantially but may still
be worthwhile depending upon your age.
Many
companies offer a spouse discount if both you and
your spouse apply for and are approved for coverage
at the same time. This discount could be ten percent
to fifteen percent off both premiums.
It
is important to work with an insurance professional
who can help you assess your overall situation and
help you design a policy that provides the benefits
most important to you while maintaining an affordable
premium based on your assets and cash flow. .
|
