By: Investor Solutions, Inc.
Exploring Long Term Care
As each day passes, one thing in life is for sure – you’re getting older. Life expectancies are on the rise and millions of Americans are utilizing nursing care or skilled home health care. Can you afford to not take long-term care seriously? Think about the scary reality that 1 out of 2 people who have reached age 50 will need Long-Term Care during their lifetime (Employee Benefit Research Institute). The costs of long-term care are astonishing now and they will soar even higher in the upcoming years as baby boomers flock into retirement. At what age should long-term care insurance be considered part of your risk protection plan? You may think that you can afford the costs, but you might want to take another look. (see Table A)
|How Long Could You Afford
To Pay For Nursing Home* or Home Care?
|Cost Per Day||Length of Nursing Home Stay*|
|1 Year||3 Years||8 Years|
|* Assisted living facility costs typically run at 60%-80% of nursing home costs|
**Chart above used under the permission of Murray Gordon, President of MAGA Long Term Care Specialists at http://www.magaltc.com/
Long-term care is the help you’ll need if you are unable to care for yourself because of a prolonged illness, accident or disability. This type of care ranges from assistance with the activities of daily living, to home care, to 24-hour skilled, intermediate or custodial care. Studies have indicated that more than 70 percent of individuals over the age of 65 will use some form of home health care. According to recent survey conducted by Metlife, they estimated that a one-year stay in a nursing home will cost $66,000, ouch! So, what would happen if you’re age 66 and admitted into a nursing home without insurance? In most cases, Medicare will pick up the first 20 days at no cost to you. For the next 80 days, you pay charges up to $109.50 per day, and Medicare pays the remaining bill. After the first 100 days in a benefit period have elapsed, you are stuck with the full bill. Government assistance will usually not kick in until the assets of both spouses are virtually depleted.
When is the right time to consider purchasing long-term care insurance? Many people will wait until they retire to start looking at policies, however; the ideal time to buy is when you are in your early 50’s and in good health. The cost of a long-term care policy depends primarily on three basic factors: your current age, current state of health, and where you live. In most cases, when you purchase a LTC policy you may not actually use it for another 10 to 30 years. For this reason, it’s important to chose an innovative carrier that updates their policies frequently, is financially sound (strength and assets), and with a high insurance rating. The four major players in the LTC industry are MetLife, Prudential, John Hancock, and GE Capital Assurance (based on 2003 assets, rating, and policies sold). When you shop around for a policy, consider using an independent broker and have them obtain quotes from at least three to four insurance companies.
Be advised that most policies will require the inability to perform at least two of the “daily functions of living (ADL’s)” in order to initiate benefits. The daily living activities (ADL’s) include: eating, bathing, dressing, transferring from bed to chair, using the toilet, and bladder control. A qualified physician must certify to the insurer that you qualify for the benefits. In most cases, the policy will require a trained professional be obtained in order to qualify for the benefit- a family member that acts as your caregiver will not qualify, unless they are qualified. Although most policies no longer require any hospitalization before benefits start, it’s important to check the language in your policy before you buy it.
Along with meeting the qualifications discussed above, there are other important considerations you’ll want to mull over when shopping for a LTC Policy such as:
Elimination Period- The period of time that must pass before your policy kicks in.
Length of Coverage- The best is unlimited payout, but less expensive policies can be issued with smaller pay periods.
What is Covered? – You’ll want to try to cover the three basis categories: home settings, assisted living, and skilled nursing facility.
Inflation Rider- All tax-qualified policies today offer this option, your benefit increases with inflation, without raising your premium.
Just to give you an example, I acquired premium breakdowns from an independent broker for starting a LTC policy at ages 45, 55, and 65. Specific policy requirements were the following: Elimination Period- 100 days, Preferred Underwriting (good health), Daily Facility Benefit $150, Home Care Benefit 100%, Inflation Protected, Facility Benefit Period- 5 years. The annual premiums were quoted as follows:
Age 45 Age 55 Age 65
Total Annual Premium $ 1,424 $ 1,985 $ 3,108
As you can see, the earlier that you initiate a policy the lower your premium will be. But wait; there is still some good news. If you purchased a tax-qualified policy (most new policies will qualify), some or all of your premiums paid for long-term care insurance may be deductible. The costs of an individual LTC policy are deductible as medical expenses subject to the 7.5 percent of your adjusted gross income limitation. If you’re self-employed, the premiums are deductible as an adjustment to gross income. How much you can deduct, is based on your age and adjusted annually, based on increases in the medical component of the Consumer Price Index. Plus, a new IRS law also clarified that any benefits received (up to $230 a day, indexed for inflation) will not be considered taxable income.
Here’s a snapshot of the allowed deduction for 2004:
2004 Premium Deduction Limitations:
40 or less $260
71 and over $3,250
Of the 12 million Americans who need long-term care, approximately 7 million are elderly and nearly 5 million are working age adults.