The Basics of Long-Term Care Insurance

Thinking about the need and the costs of long-term care is enough to make anyone uncomfortable. But while it’s a difficult subject to talk about, it’s also a topic that often generates lots of questions and misunderstanding.

Consider the numbers: The average cost of nursing home care in the United States now exceeds $55,000 per year, and it is expected to reach $241,000 annually within 30 years. The annual cost of paying for daily visits by a home health care aide is currently about $16,000 per year and likely to reach $68,000 during the same 30-year period. Making matters worse, fewer than half of Americans over age 45 have spoken with their adult children about long-term care.*

Who Pays?
For the most part, those who need long-term care are left to foot the bill on their own. Neither Medicare, nor Medicare supplemental coverage (“Medigap”), nor standard health insurance policies cover long-term care unless you are impoverished. That’s why long-term care insurance is so important. Since premium costs are based on your age and health at the time of purchase, the younger and healthier you are when you purchase a policy, the lower the premium you’re apt to pay during the life of the plan.

As you evaluate long-term care insurance, keep the following variables in mind:

• Coverage Parameters. Policies will differ in the types of services they support. Be sure to choose a policy that best meets your particular needs.
• Benefits Payout. How much does the policy pay per day for care in a particular setting? How does the policy pay out? (e.g., a fixed daily amount, as reimbursement for the cost of care up to a daily maximum?) Does the policy have a maximum lifetime limit?
• Eligibility. Does the policy use certain “triggers” to determine benefits eligibility, such as the formal diagnosis of an illness or disability? What is the maximum issue age for the policy?
• Women May Need More. Longer life spans for women may signal the need for additional coverage. For example, female residents typically account for 75% of the nursing home population, and on average they are older (83) than their male counterparts (76).**

Finally, keep in mind that most long-term care policies sold today are federally tax-qualified, which means premiums paid and out-of-pocket expenses are deductible. Also, long-term care benefits received are not taxed as income up to certain limits.

*Source: American Council of Life Insurers.
**Source: National Center for Health Statistics.

©2004 Standard & Poor’s Financial Communications. All rights reserved.