The Basics of Long-Term Care Policies
by Gerald Townsend, Financial Editor

There is a growing awareness of the need to seriously consider long-term care (LTC) insurance. Medicare is of limited use for long-term care expenses and Medicaid, never the pro-vider of choice for most people, continues to get more restrictive and difficult to qualify for. Perhaps you will be in the fortunate position of having sufficient assets to cover potential long-term care costs, but most likely insurance will become an essential part of your long-term care financial plan. However, these policies are complex and confusing. How do you know which options are best for you? Here area few tips:

Strong Insurance Company
A promise is only as good as the one making the promise. Will your insurance company be around to fulfill the promise they are making to you? Choose a company that is highly-rated by one of the insurance rating services. However, keep in mind that ratings can change. Since you hopefully won’t need your policy benefits for many years, just as your insurance company monitors your long-term health, you also need to continue monitoring theirs!

Coverage
One or more of the following may be covered: nursing home care, home health care, assisted living, hospice care, or adult day care. Choose a comprehensive policy covering many types of care, but also one that provides flexibility in choosing the right kinds and levels of care.

Activities of Daily Living
Policy benefits are triggered by your inability to perform “activities of daily living” (ADLs), such as eating, dressing, bathing, cooking, using the toilet, maintaining continence, and moving about. Choose a policy that does not require the loss of more than two ADL’s before benefits commence.

Waiting Period
A waiting period on a LTC policy is like a deductible on a homeowner’s or auto policy. It is the period you have to wait before benefits start. It could range from zero to 30 days, 90 days, 180 days, or longer. A longer waiting period can help reduce your premium costs, but make sure you have sufficient assets to cover this period, since you will be responsible for your costs during the wait.

Benefit Amount
The daily benefit is the amount paid by a LTC policy for eligible expenses. You can reduce the premium of your policy by selecting a smaller benefit amount, but obviously that means you will have cover all the costs above the policy benefit amount. A survey done last year by Met Life indicated that the daily costs in the Raleigh-Durham area for nursing home care averaged $151 a day for semi-private rooms (with a range of $120-$190) and averaged $172 a day for private rooms (with a range of $147-$208).

Costs of care will continue to climb, so it is important to add inflation protection to your policy. Policies may give you a choice of “compound interest” or “simple interest” when calculating your inflation benefit. Although compound interest will be more expensive, the younger you are when you acquire your policy, the more you should consider adding the compound vs. the simple interest inflation protection.

Benefit Period
How long should your coverage last? Available benefit periods may range from 2 – 6 years, or longer, with lifetime benefits also being a choice.  On average, a three year benefit period is sufficient for most people. If your family has a history of chronic disease, consider a longer term policy.

Premium Period
Finally, consider how long you want to pay the premiums. Premiums are normally paid as long as you keep the policy, although no premiums are due during the period you are receiving benefits. However, it is possible to pay premiums over a shorter period of time, such as 10 years, or to a certain age, such as 65. A shorter premium paying period is attractive for a number of reasons: It is easier to pay them during your working years, when income is higher; there is a peace of mind, knowing that during your retirement years you won’t be burdened by this significant cost; and since insurance companies can increase future premiums, as soon as you have fully paid for your policy you are no longer at risk for future premium increases.

Gerald A. Townsend, CPA/PFS,CFP®,CFA® is President of Townsend Asset Management Corp, a registered investment advisory firm in Raleigh, NC. His email address is Gerald@AssetMgr.com.