Investment or Gimmick?
"So, what's the deal with long-term care insurance? Do I
need it? Isn't it just a waste of my money?" "Is my policy
good enough?" "I don't need long-term care insurance because
I'm never going to a nursing home." "I've got plenty of
money to pay for my own care." "Do I have enough coverage?"
In our office, we hear these comments and questions on a
regular basis. Long-term care insurance is a baffling topic
for many. Let's try to put this puzzle together piece by
is it? Long-term care insurance is an insurance policy
that will pay benefits to the insured upon the occurrence
of certain "triggering events." Usually, benefits under
the policy are triggered when (i) the insured begins receiving
home care or care in a skilled nursing or assisted living
facility and (ii) such care is required due to insured's
need for assistance with at least two activities of daily
living or due to cognitive impairment. Activities of daily
living are dressing, feeding, toileting, transferring, bathing
needs it? The simple answer is that most of the members
of our community age 50 or above should at least consider
purchasing long-term care insurance. A semi-private room
in a skilled nursing facility in our community may easily
cost as much as $5,000 - $6,000 per month, or up to $72,000
in a year. And that amount only pays for room and board.
This significant expense quickly depletes most estates.
the larger estate, long-term care insurance can be the "mote around
the castle" that protects all of the careful financial and estate
planning that's been accomplished by insuring that assets will not
be depleted on long-term care. For the smaller estate, long-term
care insurance can be the difference between the "privilege" of
Medicaid eligibility for long-term care and saving the family home.
However, long-term care insurance for such estates may not be appropriate
unless the premiums can be paid out of disposable income without changing
lifestyle. Because long-term care insurance can be cost-prohibitive
for the smaller estate, particularly for retirees on a fixed income,
adult children frequently pay the premiums for such policies for their
parents in order to protect the family assets, particularly if highly
appreciated real property is involved.
a good policy? You should consider the following factors
when evaluating a long-term care policy:
- Company - ALWAYS check
the credit rating of the company offering the policy.
Regardless of the "bells and whistles" the policy may
offer, the policy is only as good as the company's ability
to pay any potential claims. You can check the credit
rating of insurance companies on the web at Medicare Prescription
Drug "Personal Plan Finder" at www.standardandpoors.com
- Coverage - We see lots
of policies that cover only care in a skilled nursing
or assisted living facility. Most people prefer to receive
care in their homes. Since none of us has a crystal ball,
we recommend that clients purchase a comprehensive policy
that covers home care, adult day care, assisted living
and skilled nursing care.
- Daily Benefit - Your
"daily benefit" is that amount that your policy will pay
to you for home care, adult day care, assisted living
or nursing home care. You should base your daily benefit
amount on the most expensive of these options - nursing
home care (although home care may be more expensive, most
people do not receive 24-hour home care). If we assume
that the daily rate for a semiprivate room in skilled
care is $165/day, then your daily benefit amount should
be $165 less that amount that you can pay from
your income for your care without impacting your lifestyle
or that of your spouse.
- Benefit period - The
"benefit period" defines how long your policy will pay
benefits. Often, this is expressed in terms of a maximum
dollar amount that the policy will pay. So, a policy with
a daily benefit of $150 and a lifetime maximum of $164,250
would provide three years of nursing home coverage at
that level. Because nursing homes care for the frailest
and sickest of our seniors, the typical nursing home stay
is less than two years. However, for the dementia patients,
long-term care may extend for years. We have typically
recommended policies with a three year benefit period
because the Medicaid "lookback" period has been 36 months.
The Deficit Reduction Act of 2005 extended this lookback
period to 60 months, which may mean that we will begin
to see longer benefit periods for long-term care policies.
Lifetime benefit periods are more expensive and are generally
not necessary other than as a peace of mind measure.
- Elimination Period -
The "elimination period" is the number of days that you
must receive care that would otherwise be covered under
your policy before your policy begins to pay benefits.
We typically see a 90-day elimination period for nursing
facility benefits because this period of care may
be covered by a Medicare supplement policy. Please note
that adult day care and assisted living care will not
be eligible for coverage under a Medicare supplement policy
and that there is very coverage under Medicare for home
care. Therefore, depending on your circumstances, a zero
elimination period may be appropriate for home care, while
a 90 elimination period may be sufficient for skilled
- Inflation Protection
- We know that the expense for medical care is growing
at a rate that exceeds the general inflation rate. Therefore,
purchasing policy that fixes the daily benefit amount
leaves your estate vulnerable to the increasing costs
of nursing care. Particularly for those purchasers in
their sixties, we advise a compound inflation rider that
increases the daily benefit amount annually. Depending
on the circumstances, the older purchaser may include
a simple inflation rider or may purchase a higher daily
benefit with no inflation rider.
with the outline above, long-term care insurance is a difficult topic.
Too often, long-term care insurance is evaluated as an investment product
and found lacking by financial planners. Measured against other
investment products, long-term care insurance may not provide the estate
with a return that competes with life insurance or market investments.
But for the surviving spouse with a significant estate, long-term care
insurance may provide the peace of mind of knowing that her care will
not financially, physically or emotionally burden her children, that
her care will not "un-do" her husband's careful financial planning
or eliminate opportunities for her children or grandchildren, that she
can exert some control today over things that may happen tomorrow.
For the later second marriage, long-term care insurance may maintain
the separation of the assets of each spouse. For the more modest
estate, long-term care insurance may eliminate the painful task of taking
apart mom and dad's estate in order to fund dad's care in the nursing
home. In each of these circumstances, long-term care insurance
defies mathematics to quantify the value provided.
discussion is provided as general information only and does
not constitute legal or investment advice. Please consult
your attorney or financial advisor to evaluate any long-term
care insurance product.
return to our HOME
A. Craig, P.A.
in Elder Law for Western North Carolina
East State Street, Black Mountain, NC 28711
828-669-0799 (Voice) 828-669-0055 (Fax)
2006 - Wendy A. Craig, P.A.
This Site: www.WNCElderLaw.com
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