Taking The Surprise Out Of Long-Term Care

By Steven Merkel AAA

People tend to think they will never need long-term care; unfortunately, if they do, they are not prepared for the financial burden it may cause. The fact is that more than 50% of Americans are expected to need some form of long-term care at some point in their lives. According to "A Shopper's Guide to Long-Term Care Insurance" (put out by the National Association of Insurance Commissioners), there is a 41% chance that those over 65 will spend an average of 2.5 years in a nursing home. When should you shop around for long-term care insurance? The time may be now.

What Is Long-Term Care?
Long-term care refers to a broad range of supportive medical, personal, and social services needed by people who are unable to meet their basic living needs for an extended period of time. This support, which requires the time and effort of a healthy caregiver, can be supplied at home or in a nursing care facility.

How Much Does It Cost?
Well, at $200/per day, you would spend $73,000 for a full one-year stay in a nursing home. At three years, your nursing-home costs would be well over $200,000. Don't rely on Medicare, which only pays of 100 days of care for recovery - it does not cover indefinite long-term care.

When you are purchasing long-term care insurance, the financial strength, size, and insurance rating of your provider are significant factors to consider. Since the average age for LTC claims is typically in the late 70s, it may be 20 to 30 years before you'll need to cash in on your policy. So you want to be quite sure that your insurer will still be around when you need it. (For further reading, see Long-Term Care Insurance: Who Needs It?)

There are many decisions to make when buying long-term care insurance, but the five key factors that will have the largest impact on the cost of your policy include (1) the elimination period, (2) your age, (3) benefit period, (4) daily benefits, and (5) inflation riders.

1. Elimination Period - This is the number of days you choose to wait until your benefits begin after you start receiving care. They can begin immediately once your care begins or be delayed 90, 120 or 180 days (or more). The longer your elimination period, the lower your annual premium will be. Many retirees recognize that Medicare pays all or part of the first 100 days, so they structure their policy to fill the gap when Medicare ceases to pay.

2. Your Age - In most cases, the ideal time to buy long-term care insurance is in your early 50s, while you are still in good health. Some professionals will recommend that you buy it in your 30s or 40s to lock in the lower premium costs. Remember, the older you are when you start, the higher your premium will be.

3. Benefit Period - The length of time you want the policy to continue to pay benefits (for example, two, five, eight, or more years) will affect the price of your premiums. If your family has a history of needing years of care, you may want to opt for the longer period. Since the average stay in a nursing home is 2.4 years and it's important to keep premiums affordable, a five-year benefit period is often a popular choice.

4. Daily Benefits - The daily benefits represent the amount that the insurer will pay to cover your daily care. According to the 2009 Metlife Survey of Long-Term Care Costs, a nursing home costs between $200 and $220 per day on average, but these numbers vary depending on your location and the amenities available at the facility. Keep in mind, the costs of at-home care will usually be considerably more than those for a nursing home. If you plan on using your savings to pay for some of the daily costs, you can select a lower daily benefit to keep your premiums down.

5. Inflation Riders - This inflation protection feature allows an annual increase in your daily benefit to help keep pace with the rising costs of inflation. This is one of the most important additional features of an LTC policy. With the elderly population on the rise, the costs of long-term care are estimated to rise by 5% or more per year. At this rate, a 50 year old purchasing a policy today with a $150 daily benefit will need over $390 per day 20 years from now. (Find out more about how to make sure your LTC policy provides enough coverage in LTC Coverage Not A No-Brainer.)

Claiming Your Benefits
To be eligible to receive benefits, you must have a qualified physician verify to the insurer that you are unable to meet your basic living needs for an extended period of time. Before paying anything, most policies will require proof you are unable to perform at least two of the daily functions of living. The activities of daily living (ADLs) include eating, bathing, dressing, using the toilet, bladder control and transferring from bed to chair.

Once you are eligible, most policies require you to have a trained professional supply the caregiving - family members, unless they are qualified professionals, no longer count as caregivers. Although many of the policies that at one time required hospitalization are extinct, it's still important to check the policy language to make sure that hospitalization is not required.

Conclusion
A long-term care insurance policy is a viable way to protect your assets. Do your homework first and obtain at least three quotes from highly rated LTC insurers before you sign on the dotted line. The few dollars spent today in premiums could save you hundreds of thousands down the road. For further reading, see Medicaid Versus LTC Insurance.

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