Aug. 06--When Bill Butler was 58 and his wife, Reba, was 50, they bought a long-term care insurance policy. Both were retired at the time, Bill as an electrical engineer and Reba as an administrative employee with Indiana University.
"We had religiously saved for retirement, and long-term care was the biggest risk to our retirement savings," Bill said. "We, along with our investment adviser, decided it was a risk we needed to manage, so we signed up for long-term care insurance."
Bill said the timing was particularly fortuitous, because the following year he was diagnosed with prostate cancer, and the year after that Reba was diagnosed with breast cancer.
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"If we had tried to buy long-term care insurance after we became ill, our rates may have been a lot higher, or maybe we would have been denied coverage altogether," Bill said.
Their policy, which costs them $3,800 a year, covers nursing home care, in-home care and assisted-living care -- with their benefit amount increasing 5 percent each year to account for future inflation.
"I'm quite a bit older than Reba, so if I were to end up in a nursing home, Reba knows she would still have plenty of money to live on," Bill said. "In the meantime, I'm happy to pay the premiums even if we never need to use the policy's benefits, just like I'm happy to pay my auto insurance even if we never have a wreck."
The Butlers feel providing for their potential long-term care needs while still protecting their hard-earned nest egg is a logical move, especially in light of research showing that two-thirds of people older than 65 will eventually need long-term care -- either in a nursing home or assisted-living facility, or through in-home care or adult day care.
"Long-term care services can quickly devastate a family's finances without proper planning," said Rebecca Vaughan, director of the Indiana Long Term Care Partnership Program. "In Indiana, one year of facility care can average from $41,000 to $76,000, and the average hourly rate for home health is about $21 per hour, or $250 per week."
Vaughan said receiving round-the-clock, in-home care or living in an upscale assisted-living facility can cost you even more -- as much as $100,000 per year.
Why people don't buy
One of the main deterrents to people buying long-term care insurance is the high cost, but another is the mistaken belief that Medicare or medical insurance will pay for long-term care, Vaughan said. Medicaid will pay for long-term nursing home care, but you must deplete most of your financial resources to qualify.
Vaughan said because nearly 1 of 3 men and 1 of 2 women will need some level of long-term care in their lifetime, she believes it's crucial that consumers understand the emotional and financial impact that care would have on their lives.
"As the baby boomer generation ages, every citizen will be affected by long-term care -- either needing the services, being a caretaker, or as a taxpayer supporting Medicaid," she said. "A long-term care insurance policy may not be the right financial choice for everyone, but it certainly is one option that can help avoid financial impoverishment."
But some people don't buy long-term care insurance because they can't. Vaughan said insurers almost always deny those with permanent memory loss, and other possible disqualifying conditions -- depending on severity and other factors -- include arthritis, osteoporosis and diabetes.
Buying the right policy
Before buying a long-term care policy, Vaughan says, people should consult with a long-term care professional, financial planner or financial adviser.
"Since the decision to purchase a long-term care insurance policy is more than just a comparison of benefits and cost, it's important that a person consult with a knowledgeable long-term care professional," she said. "In addition, talking with someone who has been a caretaker or received long-term care services would be extremely helpful."
The cost of long-term care insurance can vary greatly according to a person's age, health, selected benefits and the company issuing the policy. While your age is the most weighty factor in determining your premium, the company you choose is also important. A recent study found that for a $150 daily benefit lasting three years for a married couple aged 65 in standard health, the annual premiums for similar policies from different companies ranged in price from $3,815 to $7,129.
Choosing the right company is important for another reason. Some insurers with poor reputations often reject or drag out payments for obscure reasons. They might pay for home care workers only if the workers keep detailed notes of all the services rendered, or might trim days of coverage because they object to your plan of care.
Vaughan suggested looking for a company that's been in the long-term care business for an extended period of time, and one that has a good consumer track record and a strong financial rating.
"And a consumer needs to know what they are buying," she said. "A facility-only policy would just cover facilities, such as a nursing home and assisted-living facility, but a comprehensive policy (the most common kind sold) would provide facility coverage as well as home and community care -- things like home health care, adult day care, assisted living, etc."
Vaughan said the estimated average premium would be about $8,000 a year for an Indiana couple in good health, if the husband is 65 and the wife is 62 and they buy a policy with a five-year coverage period and 5 percent compound inflation protection. She added that most insurance companies offer couples a discount between 20 and 40 percent.
Most experts say inflation protection is a wise choice because it ensures your coverage keeps up with rising medical costs over the years. To provide yourself with meaningful long-range coverage, Vaughan said you would typically want to select a policy that has a $180 to $200 daily benefit; inflation protection that raises your benefits by 5 percent each year; and a 3-, 4- or 5-year benefit period.
She said few companies today offer a lifetime benefit period because they're too costly for most people, and because -- due to new technologies and medications -- few people these days require long-term care for such an extended period of time.
Vaughan suggested choosing a policy that is "short and fat" -- one that has fewer years of coverage but a larger daily benefit. She said you should also consider a policy with an "alternate care benefit," which features language recognizing that because new trends in long-term care are constantly emerging, coverage will be provided for future services not spelled out now. People who bought an alternate care benefit decades ago are now able to receive in-home care and assisted-living care -- two of today's more popular long-term care options.
Vaughan stressed that buying long-term care insurance is an individual decision that should take into account far more than policy benefits.
"A major factor is a person's health condition and the amount of money that might be needed for health care," she said. "The extent of the family and social support system, financial resources available to pay for maintenance care and the importance of maintaining control over your health care decisions are important factors yet difficult to predict in the future."
Must have proof
Before giving you your long-term care benefit, most insurance companies require that you meet a dependency threshold by providing them with documentation from your doctor saying that you either need care due to cognitive impairment or that you require help with at least two "activities of daily living" -- which include bathing, dressing, eating, getting in and out of bed and to the bathroom, continence and walking.
Previous stories on cost of care
Cost of care: Nursing home fees shock many
The roles of Medicare, Medicaid in financing nursing care
Editorial: Cost of care for seniors continues to grow as an issue
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