Jeanette A. Tucker | 4/21/2005 9:34:38 PM
If you are under the age of 40, you probably think the topic of long-term care doesn’t apply to you. "But it does," says LSU AgCenter family economics specialist Dr. Jeanette Tucker.
"You should be thinking about long-term care insurance not only because you will one day be old enough to need it, but because you will likely have to deal with it as your parents get older," the LSU AgCenter family economist explains.
"Old cars break down more often than new ones, and the same is true for people," Tucker says, adding, "Consequently, more than half the women and about one-third of the men who reach age 65 will spend some time in a nursing home."
The family economist says the need to live in a nursing home must be anticipated as far in advance as possible, considering the cost of nursing home care can range from $30,000 to $70,000 annually. According to a 2004 study by MetLife, annual nursing home costs in Louisiana range from $34,000 in the Shreveport area to more than $46,000 in the New Orleans area.
Long-term care insurance is designed to help cover the cost of services for people needing assistance with activities of daily living such as eating, dressing and bathing or for those who have a severe cognitive impairment such as Alzheimer’s disease.
Long-term care insurance is a new product to many consumers. It can be a great financial help for those who are unable to care for themselves. On the other hand, two groups probably don’t need the coverage, Tucker points out. One includes those who can afford to pay $40,000 every year for long-term care without risking their financial security. The other includes those who would quickly qualify for Medicaid at the time they needed long-term care.
Individuals who do not fall into either of these groups should consider buying a policy – and buying it as early as age 40 or 50. Why? The critical element in obtaining nursing home insurance is that the earlier you embark on such a plan, the less expensive it will be yearly. The cost of coverage is directly related to age (there is no cost difference between men and women), and once you buy the policy, the cost remains the same for life.
Estimates suggest that a 50 year old will pay 30 percent less in total payments over his lifetime than a 75 year old and will be protected for 25 additional years.
A second reason to purchase long-term care insurance at a younger age is that you are more likely to qualify. Applicants with medical conditions may be declined or required to pay higher premiums. Applicants are more likely to be approved for coverage by purchasing a long-term care policy at a younger age, when they are less likely to have symptoms.
Thus, it is best to buy a policy when you are young enough to afford it and healthy enough to qualify.
Tucker cautions, however, before purchasing a policy, consumers should be sure they understand the options available to them. When looking for a long-term care policy, consider these features suggested by financial advisor Ric Edelman:
• $180 per day in coverage. This figure approximates the current cost of nursing home care nationwide. Additional coverage may be obtained for a corresponding increase in cost. Many people have other income sources, however, and do not need a policy covering 100 percent of the cost of care.
• At least three years of coverage. Five or six years of coverage are better. Most people do not need lifetime benefits with their exorbitant costs. Fewer than 2 percent of residents stay in a nursing home more than five years. Thus, the odds are small that you’ll use nursing home benefits beyond five years. Consumers, however, need to think beyond nursing homes for long term care including assisted living.
• A 90-day waiting period. Delaying the start of benefits is an excellent way to reduce the premium. This will require you to "self-insure" the first 90 days, however, which could cost you about $18,000. Make certain you have enough cash reserves to afford this outlay.
• Inflation protection. Rest assured, the cost of care will increase over time. Thus, you need to make sure that the benefit amount you buy today maintains its purchasing power in the future. Inflation protection is a must for those under 70, and still suggested for those over 70.
• No prior hospitalization required. Many illnesses afflicting the elderly, such as Alzheimer’s, never place you in a hospital. Avoid policies that require prior hospitalization.
• Gatekeeper determination. Who certifies that a policyholder is not able to perform the Activities of Daily Living that qualifies the patient to begin receiving payments from the policy—Your doctor? The insurance company? Another? Likewise, how disabled must one be to receive benefits? Policy requirements may range from requiring "substantial" assistance to "hands-on" assistance—how are these terms defined? Select a policy that offers the most liberal certification requirements or you may find claims delayed or even denied.
• Coverage not limited to skilled nursing homes. Fewer than 1 percent of all nursing home residents require skilled care. Thus, your policy should pay regardless of the type of facility you enter.
• Waiver of premium included. This feature allows you to stop paying premiums once you’ve received benefits for 90 days.
• Home health care. People often wait as long as possible before admission to a nursing home, then return home as quickly as they can. This crucial feature pays for adult day care or home visits by a nurse or home health aide to assist with medication, dressing, bathing and preparing meals. Make certain the benefit you receive for home health care is the same as you get for care in a facility. Many policies either exclude payment for home health care or pay at only 50 percent to 75 percent of the regular benefit.
Tucker recommends never let cost be the determining factor when purchasing long-term care insurance. "Sometimes the least expensive plan is not the wisest choice, because coverage may be limited or provide few options," she says, adding, "It may be advantageous to spend more on a plan that ensures you have more choices about the level and type of care you may one day need."
For information on related family and consumer topics, visit the FCS Web site at http://www.lsuagcenter.com/Inst/
Extension/Departments/fcs/. For local information and educational programs, contact an extension agent in your parish LSU AgCenter office.