Why You Need Long-Term-Care Insurance

How would you pay for long-term care if you needed it? When baby boomers were asked this in a study commissioned by CareQuest, which helps employers set up long-term care packages, only 5% said they would rely on long-term-care insurance. Most said they expected life, health or disability insurance or government programs to cover the costs.

If that's what you're counting on, think again:

• Almost half the population will need long-term care at some point, says Don Charsky, president of LifePlans, a consulting firm that works with many long-term-care insurance companies.
• The average length of stay in a nursing home is 2frac12; years, Charsky says.
• The average annual cost for a private room at a nursing home is $74,095, according to MetLife Mature Market Institute.
• The average hourly cost of a health aide who gives in-home care is $19. It's double that for a licensed nurse. If you needed round-the-clock care from a nurse, you would have to pay more than $300,000 a year.
• You can't get long-term care insurance once you have a problem that requires long-term care.

What if you don't have it?

Long-term care usually involves nonmedical help with such daily tasks as bathing and dressing. Health, life and disability insurance won't pay for that, nor will medicare. But long-term-care insurance will.

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People who don't have coverage have to pay out-of-pocket until they run out of money and become eligible for medicaid. "You're exhausting your life savings or letting the government pick out your nursing home for you," says Marilee Driscoll, author of The Complete Idiot's Guide to Long-Term Care Planning (Alpha Books, $20). "Anyone who is seriously saving for retirement, anyone who's concerned about quality of life and financial security, needs to be concerned about how to pay for possible long-term care."

How to shop for a policy

Long-term-care insurance can be confusing because it's still relatively new, insurance companies keep adding bells and whistles to policies, and most financial advisers know little about it, Driscoll says. But here is some advice about what to consider when buying a policy.

Buy sooner rather than later. The younger and healthier you are when you get a policy, the cheaper your premiums will be. A 55-year-old would pay $911 a year for a policy that pays $100 a day for three years of assistance, according to a study by the American Council of Life Insurers. A 65-year-old would pay more than double that for the same coverage. If your health is less than perfect, finding coverage can be difficult but is not impossible.

Stick with major issuers. "You're buying this protection for the long term, so make sure you hook up with a company that's going to be there a long time," Charsky says. Consider companies such as GE Financial, John Hancock and UnumProvident. Then find a broker who represents several companies and can compare prices and features.

Don't skimp on coverage. Most people who have long-term-care coverage wish they had bought more, according to a recent study by LifePlans. Consider at least a three-year benefit period, which would cover the average nursing home stay. Also, a short "elimination period" (basically a deductible -- see below), even though it will increase premiums, could save you out-of-pocket costs in the long run. And look for a policy that covers care in as many situations as possible: at home, in an assisted living facility, in a nursing home.

Find out how the policy elimination period (deductible) is satisfied. A policy with 90-day elimination period, for example, means you're willing to pay out-of-pocket for the first 90 days of care. You can save money by finding a policy that will credit you for an entire week if you pay for care at least one day a week.

Compare how inflation protection works. Most policies offer inflation protection, so your daily maximum benefit grows but your premium doesn't. But there are many ways inflation protection can differ. For example, some policies can cap inflation protection once your daily maximum benefit has increased by 50%. Then you're left with coverage that will fall short if long-term care costs continue to rise.

To learn more about what to consider before buying a policy, see "Research Your Long-Term Care Needs."

Watch out for ...

The level of assistance required to trigger benefits. There are six activities of daily living that trigger benefits: bathing, eating, using the bathroom, dressing, moving back and forth from a bed to a chair (transferring), and remaining continent. If you can't do two of these activities, your policy usually kicks in. But some policies go a step further by requiring a certain level of assistance to help you with those activities, says Robert Pearson, CEO of CareQuest. With those policies, you must be receiving hands-on, rather than just supervisory, assistance to trigger benefits. So make sure your policy requires only supervisory assistance, he says. It's an easier standard to meet.

Reasonable and customary language. You might think your coverage provides a large enough daily benefit, but some companies won't reimburse costs that exceed what is considered reasonable and customary in your town. In that case "you've paid for a benefit you can't access," Driscoll says.

Do some research to find out how much care costs by the hour where you live (for example, check your Yellow Pages under "home health care"). This will help you figure out your daily benefit -- the amount of insurance you really need.