Long-term Care

Under long-term-care insurance coverage, benefits kick in after you can no longer perform certain basic daily functions for yourself as a result of illness, injury or old age.

Coverage typically includes a wide array of home care services as well as nursing-home care, if necessary.

What are the odds you'll ever need long-term care? A study by the by the U.S. Department of Health and Human Services indicates that at least 40 percent of people age 65 might need to enter a nursing home at some point in their lives. The longer you live, the greater the chance that you will need some form of long-term care: because they outlive men, women are 50 percent more likely than men to enter a nursing home.

Unfortunately, long-term care is not cheap. Nursing-home costs can run as high as $100,000 per year, with $40,000 about average nationally. Even home care can run from $10,000 to well over $20,000 if skilled care is required.

Regular health insurance doesn't provide LTC coverage. Neither does Medicare. Medicaid does provide coverage, picking up the tab for more than half of all nursing-home costs, but if you're not already poor, you may have to sacrifice a big chunk of your savings before Medicaid benefits kick in.

Other points to consider:

  • Most policies pay from $50 to more than $250 a day for nursing-home care, less for at-home care.
  • An inflation adjustment, called a COLA rider, bumps up your benefit payments to keep pace with inflation.
  • Premiums depend on initial age, benefit levels and the elimination period (an elimination period is the length of time you must wait before you can receive benefits).
  • Try to avoid buying optional "nonforfeiture benefits," such as guaranteed refund of premiums upon death -- these options tend to be expensive and are unnecessary if you have adequate life insurance protection.
  • Since about 90 percent of nursing home patients stay in the home fewer than five years, you might consider a policy that offers benefits for a one-time stay, up to five years. Coverage gets more expensive for multiple stays and for longer maximum time periods.
  • Make sure the policy is guaranteed renewable, so that it can't be canceled or terminated by the insurance company just when you need coverage the most.
  • Make sure that Alzheimer's disease is covered. Certain mental and nervous disorders are often not covered. Substance abuse is often not covered.

The longer you wait to buy a policy, the higher your desired benefit levels and the shorter your elimination period, the more expensive the policy becomes (that is, the higher the premiums).

To buy an individual long-term-care policy, you must be at least 50 and in reasonably good health. A policy providing unlimited years in a nursing home at $100 a day, no elimination period and two years of home health care at $50 per day -- with inflation increases of 5 percent compounded annually on all benefits -- would cost a healthy 50-year-old woman about $1,000 a year.

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