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Money Matters for Seniors by Robert
Valentine
Do You Need Long Term Care Insurance?
Oct. 28, 2002 - Here’s something to think about:
Almost half of people over age 65 will spend some time in a nursing
home.1
Not only
are we more and more likely to require some type of senior care, but
the costs involved in nursing home care are inordinately expensive.
In fact, the average annual cost involved with a one-year nursing home
stay is about $50,000.2
In many larger cities it can be much more expensive. Unfortunately,
none of these expenses are covered by Medicare or private medical
insurance.
Many of
us spend thousands of dollars making sure we have things like auto
insurance and fire insurance on our homes—and never complain that the
money is wasted.
The truth is that for every 1,000 people, 5 will
have a house fire, 70 will have an auto accident, and roughly 500 will
need long-term care. The average claims associated with these losses
are $3,428 for a house fire, $3,000 for an auto accident, and $50,000
a year for long-term care.3
As obvious as these statistics are, many people are still under the
impression that they don’t need to worry about long-term care (LTC)
coverage. What’s more, less than 10 percent of those over age 65 have
purchased LTC insurance.4
So, why not insure against one of the most devastating costs of
life—Long Term Care?
Fortunately, a record number of seniors are beginning to buy LTC
insurance. This is most likely due to increased education and the
startling statistics we’re seeing. Most of the individuals that come
to me for their LTC insurance needs, do so in order to protect their
assets and to insure a choice in the quality of care that they
deserve. Of these individuals, the majority that end up needing the
care can remain independent, don’t burden family members with constant
24-hour care, and don’t alter their standard of living. For the
majority, this is what makes LTC insurance such an obvious choice.
When
selecting a policy, it’s important to select a policy that not only
you can afford but also meets your needs. There are many insurance
policies covering LTC available today. Policies can vary widely in
terms of benefits they’ll offer, terms of the contract, and features.
Choosing the right policy is not simple. Individuals looking to
purchase coverage should consider the following five important
factors:
·
The
insurer’s financial strength rating.
You
obviously want a solid “A” rated company that’s been around for
awhile. They are the most likely to keep your premiums stable and
honor your claims without hassle.
·
Cost-of-living adjustment (COLA).
COLA increases your chosen daily benefit each year in order to keep up
with inflation. For example, the daily benefit amount might increase
each year at a compounded or simple rate of 5%. With the health care
costs skyrocketing, this benefit is crucial.
·
Home health care and custodial nursing home care.
This gives you the option to stay at home and receive care, as well
as, receive nursing home care, if needed. Most people would prefer to
have the option of in home care.
·
Qualified policy.
Purchase a policy that is “qualified” for tax purposes. Currently
both qualified and non-qualified policies are generally considered
tax-free. However, the IRS could technically deem non-qualified
benefit payments taxable in the future.
·
Guaranteed policy.
Is the policy
guaranteed for life? Make sure the insurance company can’t cancel
your policy due to bad health.
While LTC
insurance might not be cheap, neither are the costs it covers. For
most of us, the solution to all of this is to obtain insurance as
early as possible when premiums are lower and before any pre-existing
conditions arrive. But what is the solution when
seniors
are older and coverage is more expensive? While I believe that you
should have complete coverage, there are several ways to keep premiums
down. To reduce premium costs consider these options:
·
Lengthen the
elimination period.
The elimination period is a lot like
a deductible. The longer the elimination period (deductible), the
less expensive the insurance will be. However, this means you will
have to pay the expenses for the first 30, 60, or 90 days of care.
Having a 90-day elimination period can cut premium costs considerably.
·
Choose a shorter
period of coverage.
Instead of choosing lifetime coverage choose a coverage period between
three to five years. The savings can be significant and studies show
the average nursing home stay is approximately 2 ½ years.5
·
Choose a lower
daily benefit.
The average annual cost of private nursing home care is about $150 per
day.6
If you chose just $100 per day, you could lower your premiums, if you
end up needing the coverage, you could make up the difference with
other forms of income, such as social security.
·
Get a joint
policy.
If you are married, you could get a
joint policy that covers both you and your spouse at a discount. Most
major companies offer this. If you had to make a choice on whom to
insure you should choose the wife; they are more likely to enter a
nursing home due to a longer life expectancy.
The
biggest objection I hear regarding LTC insurance is that some people
feel the money is wasted if they never end up utilizing the
coverage—It really doesn’t have to be that way. Recently the
insurance industry has introduced a new alternative that
combines life insurance
and LTC benefits into one policy. This type of policy insures that
either you or your beneficiaries get back the amount you start with,
if not more. Here’s an example: Lets assume you
deposit $50,000 and you’re a 65-year-old male. The insurance company
might provide you with up to $279,195 total long term care benefit.
If you don’t end up needing the LTC, the insurance company will
provide your heirs with a guaranteed death benefit of up to $93,065
income tax free.7
It’s not for everybody: These types of policies typically require a
large upfront deposit, but for some people, this is a good way to turn
an otherwise low paying investment or bank account into the protection
they so badly need.
Long-term
care insurance is more complex than many other forms of insurance, so
I recommend working with a qualified investment advisor in order to
find a suitable plan your comfortable with.
Endnotes
1
Source: Best Review, AM Best Company, April, 1996
2
Source: Cooperative of American Physicians, March, 2002
3
Source: Society of Actuaries, 1995 / Health Insurance Association
of America, 1994
4
Source: U.S. General Accounting Office, Testimony on Long Term
Care, “Baby Boom
Generation Increases Challenge of
Financing Needed Services,” March 27, 2001.
5
Source: Worth, February, 1996
6
Source: Health, United States, 2001, Department of Health and
Human Services CDC
7
Benefits are covered by the claims paying ability of the issuing
insurance company.
This example is for
illustrative purposes only and is not representative of an actual
policy. Actual results may vary.
Robert Valentine is a Certified Senior Advisor in
Huntington Beach, CA. He can be reached at (877) 732-2637.
About author
This article was submitted by Robert
Valentine of Financial and Retirement Management. Robert (CA Insurance
Lic #0C23496) is a Registered Representative of and offers securities
through Securities America, Inc., a Registered Broker/Dealer, Member
NASD/SIPC. Advisory services offered through Financial and Retirement
Management, a Registered Investment Advisory firm. Robert is a Certified
Senior Advisor in Huntington Beach, CA. Several of his articles on
financial planning matters that concern investors have been published by
SeniorJournal.com. Robert
can be reached at (877) 732-2637.
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