How Will You Deal with Long-Term-Care Costs?
LIFE EXPECTANCIES HAVE increased significantly and are expected to continue to increase in the future. As people age, however, they are more likely to develop conditions that limit their ability to live independently. As life expectancies increase, so does the need to make provisions for long-term-care costs.
WHAT ARE YOUR OPTIONS?
Health insurance policies typically dont pay for nursing home care, while Medicare only pays for 100 days of skilled nursing home care, if admission follows a hospital stay. Medicaid pays a significant portion of all nursing home costs, but the government has enacted tougher rules to qualify for assistance. Many elderly individuals rely on family members for help, but the personal toll can be huge.
Do you need 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.
WHAT SHOULD YOU CONSIDER?
If youre thinking about purchasing long-termcare insurance, consider these points: 4 PURCHASE AT A RELATIVELY YOUNG AGE. You should probably purchase the insurance by the time you are in your late 50s or early 60s. After that, the premiums get much more expensive. You also run the risk that you could develop a serious health condition that would prevent you from qualifying for the insurance. 4 CHECK FOR INFLATION PROVISIONS. Since you may not receive benefits for many years, and longterm- care costs have increased significantly in recent years, make sure your policy has inflation protection (additional fees apply).
*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.
4 SELECT AN APPROPRIATE BENEFIT PERIOD. Many people choose a benefit period of three years to cover the average nursing home stay. However, due to the substantial costs associated with longterm care, you may want to select a longer period. Lifetime coverage, however, probably isnt necessary. Only 1.5% of policyholders with five years of coverage exhausted their benefits (Source: Financial Planning, April 2007).
* BE AWARE OF THE POLICY PROVISIONS. Benefits should be paid in as many situations as possible, including skilled
Care, intermediate care, custodial care, home health care, and adult day care. Many people prefer to remain at home as long as possible, so make sure the policy covers a wide range of home services. Review the waiting period carefully to ensure a good balance between premium costs and out-of-pocket costs.
* UNDERSTAND THE LEVEL OF ASSISTANCE NEEDED TO QUALIFY FOR BENEFITS. Typically, benefits are paid when you are unable to perform two of five 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 Alzheimers disease, requires substantial supervision.
*DETERMINE HOW BENEFITS ARE PAID. Some policies pay a set daily amount, regardless of your actual costs. This may be a good alternative if you are staying at home and want to compensate a friend or family member for helping you. Other policies will only pay your actual out-of-pocket expenses up to a daily limit or may only pay reasonable
And customary costs.
* REVIEW NEW POLICY PROVISIONS. Long-term-care policies are relatively new, so policy riders are evolving. Make sure to check out new provisions, such as the ability to combine a life insurance and long-term-care policy, an accelerated premium provision that allows you to stop making premiums after a certain number of years, or a provision that returns premiums if you die without using benefits. Also look into partnership policies (not available in all states), which allow you to qualify for Medicaid after exhausting the policys benefits, while keeping more assets than normally allowed by Medicaid.
*CONSIDER SHARING A POLICY WITH YOUR SPOUSE. Some companies now offer policies that allow spouses to share policy benefits, which can operate in several ways.
* CHECK THE POLICYS 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.
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How Will You Deal with Long-Term-Care Costs?}