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Long Term Care Insurance                          Back to Articles & Information

Date: 2000, Jan 26
From: Sheri D. Fanning, RN,C sheri@CareMate.com

General Information- from AgeNet.com

Providing appropriate long-term care for an elderly parent can be expensive. Costs for nursing home care range from $30,000 to $60,000 annually, with approximately 50% of the cost paid by individuals. To ease the financial burden, many individuals purchase long-term care insurance. Long-term care insurance pays a fixed amount for each qualified day, either in a nursing home or at home. The benefit is paid for a specified period of time, typically several years. Without this type of insurance, an individual is required to pay from his or her personal income and savings. After the individual's savings has been depleted, care may be paid by Medicaid, a federal-state program that currently pays for medical and long-term care for those with limited financial resources.

The peace of mind that long-term care insurance provides will usually enable an individual to leave an inheritance for their loved ones. However, premiums increase with the age at which you buy a policy. A policy that may cost $1,700 annually for a 65-year-old person may cost $4,500 annually for someone who is 75 years old. A long-term care policy may not be affordable for individuals with modest incomes.

Although individuals purchase long-term care insurance for many reasons, the most important reason is to protect their life savings. Unless individuals have considerable assets, they may spend more money on a policy than what they have in savings. A 70-year-old individual protecting $20,000 in savings would spend $20,000 in premiums in approximately eight years. An individual should have over $40,000 in savings before considering the purchase of a long-term care insurance policy. A couple should use $100,000 in savings as a benchmark for this approach.

Another consideration for long-term care insurance is the desire to protect savings. Couples need to protect savings in case one spouse needs long-term care. Without insurance, savings can be easily eliminated or greatly diminished.

Current spousal impoverishment laws protect a limited amount of a couple's assets. At the time of admission to a nursing home, a couple's combined assets, excluding a house, car, and personal belongings, are to be considered available assets for long-term care. Current federal law allows one-half of available assets, with a minimum of $14,148 and a maximum of $70,740, to be protected for the spouse who remains in the community; the remainder is eligible to pay for nursing home care. An individual should have $40,000 over the amount protected by the spousal impoverishment law before considering the purchase of long-term care insurance.

The length of time a long-term care policy will pay is usually stated in days: two years is 730 days; four years is 1,460 days. Some insurance companies offer a lifetime benefit. Premiums for long-term care insurance are level. This means that the insurance company is unable to raise an individual's premiums unless all policies for a class of policyholders are raised.

A policy paying $100/day for nursing home care may cover a substantial portion of the today's nursing home cost, but it will only cover a small portion of the expense in 20 years. Many policies offer an inflation adjustment that increases the benefit amount over time, though policies differ on how inflation is calculated. Some policies provide an automatic adjustment, inflating the original benefit amount by 5% for either 20 years, or until the individual reaches the age of 86 years. If you are under the age of 65 when you purchase a policy, adjusting for 20 years is your best option. Some policies will inflate the benefit amount over the lifetime of the individual.

Besides an individual's age, the policy premium is related to the benefit amount, the length of the benefit period, and the deductible period. The deductible period is the number of days you pay for care before the policy begins to pay. Typically a deductible period will range from 20 to 100 days. The shorter the deductible period, the more expensive the premium.

Sheri D. Fanning, RN,C CareMate: Elder Care Planning Services 400 South Water Street Sparta, WI 54656 608-269-5888 phone 608-269-1837 fax Sheri@caremate.com www.CareMate.com