As anyone with an elderly relative or friend
who is unable to provide for his or her own
care can tell you, the cost of that care—whether
at home or in a facility—is a major expense.
The financial outlay for such care, because
of advanced age or chronic illness or injury,
may not be an issue for the very rich, with
significant personal resources, or the very
poor (who qualify for government assistance).
But, for the vast majority of people, whether
to purchase a long-term care insurance (LTCI)
policy is a worthy topic for discussion. Below
we provide a few questions and answers that
may assist in determining whether you want LTCI
coverage.
1. How likely is it that you will need
long-term care?
According to the National Council of Insurance
Commissioners, one person in three who turned
65 in 1990 will stay in a nursing home, with
one in ten staying five years or more. On the
other hand, according to recent statistics,
over 25 million people in the U.S. between age
65 and age 84 are living independently. Other
statistics suggest that those who do spend time
in a nursing home usually remain there under
a year.
But what about the chances that you will need
long-term care? Perhaps one of the best steps
that you can take is to evaluate your family’s
medical history. You are more likely to need
LTCI if there have been instances of early onset
of dementia, heart disease or stroke in your
family. Longevity may be a factor, too. If your
parents, grandparents or their siblings have
lived into their 90s or later, it’s not an unrealistic
assumption that you will, too—thereby increasing
the chances that you will need some kind of
professional care or assistance.
2. What does LTCI cover?
Terms differ from policy to policy. Generally,
LTCI covers care in a qualified nursing home,
in an assisted living facility or in your home.
But, often, policies will pay less for care
given in the home than in a facility. As is
the case with most insurance, coverage offers
protection from catastrophic loss of your assets
and income should you require assistance. Coverage
varies, but the ability to perform a certain
number of “activities of daily life” (ADLs)
is a common measure of when benefits will be
paid. The most common ADLs are: eating, dressing,
bathing, transferring in and out of bed, toileting
and continence.
3. What kind of LTCI coverage do you
need?
LTCI policies offer a wide variety of options.
The good news is that you should be able to
fashion a policy that closely suits your needs.
The not-so-good news is that you are going to
have to spend a significant amount of time reviewing
different policy options.
Some examples: Based upon your financial circumstances,
you may be able to pay for home care and thus
need coverage only if you enter a facility.
Do you have a relative or a friend who might
provide care? Then you’ll want a policy that
permits payments to unlicensed caregivers. Again,
based upon your resources, you may want to lengthen
or shorten the waiting period before coverage
begins. You might consider inflation protection,
as well.
4. What does it cost?
The cost of LTCI coverage depends upon a variety
of factors. Your age at the time that the policy
is issued will determine your annual premium.
The terms of the policy as well as your health
at the time that the policy is issued also will
be a factor.
Another consideration is whether your premiums
are locked in or may be adjusted in certain
circumstances, such as for inflation. Don’t
automatically reject a policy that doesn’t lock
in your premium rate. It may not necessarily
be a good idea: An insurer with insufficient
income to meet claims may go bankrupt and, possibly,
be unable to pay benefits.
5. Are there any tax breaks available
with LTCI?
LTCI premiums are deductible in the same manner
as your regular health insurance. Your expenditures
are added to your medical expenses, and you
may deduct the amount that exceeds 7.5% of your
adjusted gross income. The deduction is capped,
based upon your age.
Benefits received from LTCI policies may be
exempt from federal income tax—if the LTCI policy
is “qualified” (i.e., meets government standards).
Generally, qualified LTCI policies cannot exclude
coverage by type of treatment, medical condition
or accident. Pre-existing conditions can be
excluded only for the first six months of coverage.
And the policies may not be cancelled for reason
of nonpayment of premium. Most states now are
offering some form of tax incentives for LTCI
policyholders as well.
For tax issues involving LTCI in your personal
circumstances, contact your tax advisor before
taking any action.
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