Long Term Care Insurance – What you need to know

Scenario: Your mother has been diagnosed with a terminal illness and will eventually require treatment and long term care. How will you, as her child, make sure that she will get the care she needs without draining the remainder of her savings as well as yours?

You may have heard of long-term care insurance and how it can help alleviate the financial burdens generally associated with this type of care. But is it really worth it?
First, let’s define exactly what this insurance is.

According to the Colorado Department of Regulatory Agencies, long-term care insurance works differently than health insurance. Rather than pay all costs minus a co-payment, or a percent of care costs, long-term care insurance agrees to pay a selected dollar amount for a particular type of care.

You typically get this insurance well in advance of when it is actually needed. In a situation where an elderly parent or relative becomes ill and doesn’t already have long-term insurance, you don’t have the luxury of relying on the accumulated benefit. So the question becomes, should you buy long-term care insurance?

The fact is that the need for long-term care is becoming increasingly common. However, does this necessitate the purchase of long-term care insurance?

To Buy or Not to Buy
Having the foresight to purchase this type of insurance well in advance of when you or your loved ones will actually need it will clearly impact your decision. Some additional considerations include:

How the policies work
Long-term care services and costs
Likelihood of need for long-term care
Length of time care will be needed
How Medicaid works and should you depend on it
How to choose a long-term care insurance company

A recent report in the New England Journal of Medicine estimates that while the annual cost of nursing-home care is roughly around $36,000, it is expected that amount will more than double to $78,600 in 2010. The survey also cited that 43% of Americans who turned 65 in 1990 will need nursing-home care at some point during their lifetimes.

Long-term care expenses can deplete everything your parents or other relatives have worked and saved for their whole lives, leaving them dependent on Medicaid. The problem is that Medicaid only provides assistance after your assets drop below a certain level, and your choice of facilities is limited. When you purchase long-term care insurance, you purchase a policy that pays a pre-determined amount — usually a daily benefit amount — toward nursing home costs. And you are free to choose your own facility.

Benefits
Generally, benefits become payable when the insured person is no longer able to perform a pre-established number of “activities of daily living” (ADLs). These may include dressing, bathing and feeding oneself. Benefits may also be payable in the event of diseases such as Alzheimer's or Parkinson's, or when a physician determines that long-term care is necessary. Be sure to review the conditions under which benefits are payable before purchasing coverage.

You also decide how long you want the benefits to be payable. The longer the benefit period, the higher the premiums will be. Once you are eligible for payments, there is usually a waiting period before payments actually begin — the longer this period, the lower the cost of the policy.

Who Should Consider Long-Term Care Insurance?
You should consider getting long-term care insurance for your parents or older relatives if they are approaching retirement, if you have significant savings that could be affected by long-term care needs, or if you want to make sure you have control over your long-term care needs. Generally, long-term care insurance makes the most sense for those with between $250,000 and $2 million in liquid assets. Any less, and the insured may qualify for Medicaid before recouping the premium cost. Any more, and the insured can usually afford to pay expenses out of pocket.