Long-term Care: Realities and Planning Steps

Fact #1: Americans aged 65 or older have a 40% lifetime risk of spending time in a nursing home, according to the U.S. Department of Health and Human Services.

Fact #2: The average annual cost of nursing-home care is currently $57,000 per year; the average length of stay is 2.4 years.1

Fact #3: Medicare doesn’t cover long-term nursing home expenses. Medicaid will pay the cost, but to qualify you’ll need to spend down your hard-earned assets.

For these and other reasons, more people are considering long-term care insurance. Maybe you should too. Here’s an introduction to long-term care coverage and issues you’ll want to think about.

The Name Game
First, let’s define long-term care insurance. It can be used by anyone who needs ongoing care due to a disability or chronic health problem. Services that are commonly covered include nursing, social and rehabilitative services needed in the home or at a facility such as adult day care centers, assisted living establishments and nursing homes.

Because neither health insurance nor Medicare pays for long-term care costs, many people will need to cover the costs themselves or purchase long-term care insurance. The younger you are, the less expensive the premiums may be. That’s why it’s important to begin thinking about the insurance long before you may need it.

Common Questions
You’ll need to evaluate the “what if” issues before you purchase something that you may not need to use for 30 or 40 years. Here’s a checklist of questions to help you make an informed decision when purchasing a long-term care insurance policy.

• Is the issuing company licensed in your state and financially sound? Independent companies, such as Standard & Poor’s and A.M. Best Company rate insurance companies based on their fiscal health.
• What kind of services (e.g., nursing home, assisted living, home health care, adult day care or a combination) do you want covered?
• How much does the policy pay per day for care in different settings, such as a nursing home or assisted living facility? There may be a maximum lifetime limit. If so, is it adequate for your anticipated needs?
• When do you want benefits to kick in? Generally, the longer the waiting period, the lower the cost of a policy.
• Is there an inflation rider so that benefits remain constant with rising health care costs?
• Is there a guaranteed renewable clause, meaning the policy remains in force even if you become physically or mentally incapacitated?

Why not include your financial advisor on your long-term care planning team? Together you can tackle the issue of whether long-term care insurance makes sense for you.

1Source: The Wall Street Journal, August 5, 2003.

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