How to Plan for Your Long Term Care

The next few weeks may leave the impression that life is one big sprint through office parties and discount aisles, but eventually the lucky ones among us get old and need to slow down with someone caring for us. So it’s time to get up to speed on long-term care insurance.

Long term care insurance can help protect you from financial devastation when your health declines. There is a greater probability of long term care being needed then there is a risk of loss due to fire in your home, major auto accident or even hospitalization, says financial planner Jonathan Grossman.

“In a perfect world, we all go to sleep one night and don’t wake up, but it’s an imperfect world and long term care insurance protects financial legacies,” says Bryan Place, founder of Place Financial Advisors.

A MetLife Long-Term Care IQ survey found that only four in ten respondents know that 60-70 percent of 65-year-olds will require long-term care services in their lives. According to the 2009 MetLife Market Survey of Nursing Home, Assisted Living, Adult Day Services, and Home Care Costs, the national average annual rate for home health aid increased 5 percent, averaging $21 an hour and nursing home costs jumped to nearly $80,000 a year.

Peter Florek, vice president of a long-term care insurance agency called Maga, pitches his service emphatically in this context.

“Health insurance doesn’t cover it, and neither do proposed health care reforms. Medicare doesn’t cover it (only short term care). Medicaid does cover it, but your choice of providers is extremely limited,” he adds.

So if you decide to invest this way, check Moody’s and Standard & Poors ratings to find a well-capitalized insurer. “The protection is only as good as the company backing the risk,” explains Michael Gallo, senior vice president in charge of Long Term Care at New York Life. A no-name carrier may offer a cheaper rate up front, but you may just get what you pay for, very little just when you most need financial backup.

And don’t dawdle. Beginning January 1, 2010, you can complete tax free exchange from life insurance and annuity contracts to purchase long term care insurance, adds Place.

For all that prudence can comfort you in your retirement, you don’t need pampering: coverage is expensive even for the basics. You may not feel ready to decide if you’d ever insure for the cost of living in a group facility, so you can insure only home care.

Consider a 90- or 180-day waiting period until benefits begin. By self-insuring the initial cost, instead of opting for immediate benefits or a 30-day wait, you’ll save a lot, says Jerry Miccolis, a certified financial planner with Briton Eaton Wealth Advisors. Miccolis adds that “lifetime benefits” offer less value than you might expect- the ten-year coverage involves all that most people will need.

Long term care insurance policies provide a certain number of dollars per day in coverage. Choose a lower daily benefit amount if you get inflation coverage. If you’re in your 50s, you can choose a somewhat lower daily benefit if you also take a compounded cost-of-living adjustment. On the other hand, if you buy a policy in your 70s, you can save by buying a simple cost-of-living adjustment, explains Miccolis. (Spousal or company benefits sometimes play into costs.)

In any case, understand the exclusions and limitations of your policy. “What is and what is not covered ?” asks Tony Kenna, a partner and financial advisor with the Estate & Business Planning Group. “Does the policy allow for in-home care?” Some don’t. And those that do distinguish among skilled care, intermediate care and custodial care, for example. “Narrow down your choice of policies to those that pay for all three categories, including care given by non-professionals, such as family members or friends,” says Frank Darras, a disability and long term care insurance lawyer.

That’s right: friends. You can also try to protect yourself within your family budget, with a rider on your life insurance policy. For example, Axa Equitable offers a Long-Term Care Services Rider that speeds up death benefits for some long-term care expenses if you become chronically ill. Mike Roscoe, a senior vice president and actuary with The Hartford, says that his company’s rider covers “care from a non-professional like family and friends.” If you’re fortunate not to have a chronic illness, he adds, the money goes to your estate. Riders such as The Hartford’s, can increase your life insurance premium 6-15 percent.

A small price to pay for more seasons of holiday parties and remainder bins, isn’t it?

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