Wealth - Looking Down the Road

As long-term care costs rise, so does the need for insurance.

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Despite continuing double-digit increases in nursing home and home care costs, many people disregard the necessity of long-term care insurance. Frank Fimmano, a senior vice president at AON Consulting, points to low participation rates where employers offer long-term care insurance.

“We see only about 5 to 10 percent employee participation. Typically, it’s thought the very wealthy can self-insure, while the poor rely on the government, and the vast population in between needs the coverage,” Fimmano says. “The mission of long-term care insurance for the wealthy is preservation of assets. It’s that simple.”

Experts say that aging consumers must understand why long-term care insurance is as important as health insurance. A recent survey by John Hancock Life Insurance Co. indicated that most people don’t know enough about long-term care insurance to make informed decisions. In a 14-question quiz on long-term care basics, a majority of respondents scored correctly on only six questions.

“Most Americans have a good understanding of their risk of eventually needing long-term care, but wildly underestimate the cost, while overestimating Medicare’s role in paying for it,” says Laura Moore, president of John Hancock’s long-term care division.

Long-term care encompasses a variety of services and support for people in need of help over an extended period of time due to accident, illness, or chronic conditions such as Alzheimer’s. These services may be provided in a person’s home, an assisted living facility, or a nursing home.

According to MetLife, the national average rate for a private room in a nursing home is more than $77,000 annually. And costs are expected to increase threefold in the next 20 years. According to the American Association for Long-Term Care Insurance, the average annual cost for a semi-private room in a nursing home will reach $102,299 by 2015. Five weekly health-aide visits to a home will hit $35,299 a year. Fortunately, since it’s quite possible a husband and wife will need long-term care simultaneously, many companies offer couple discounts.

 “Buying long-term care insurance even when you have accumulated substantial assets is a hedging strategy,” observes Eric Williams, western regional director in the long-term care division of John Hancock Financial Services. “Why pay for it yourself when a more cost-effective way is by using an insurance policy?”

Long-term care policies are driven by a daily benefit amount, typically $50 to $500 a day. Industry experts suggest purchasing a three-to six-year policy with as high a daily benefit rate as you can afford.

However, Williams notes, “Long-term care insurance is not just about a monetary daily benefit. We become a clearinghouse to helping someone get connected with the right care network.”

Maneuvering through the maze of long-term care insurance offerings is daunting. Start with the California Partnership for Long-Term Care (www.dhs.ca.gov/cpltc or 800-447-0442). Since 1993, this partnership between the state and private insurers has been a strong consumer resource. “All the policies offered by the insurance carriers have been approved by this department. We watchdog these companies to make sure the long-term care products they are selling meet our criteria,” explains Chief Brenda Bufford.

“Make sure the policy you buy has an automatic, built-in inflation-protection feature of at least a 5 percent annual increase in benefits so that years from now that policy will be there for you in terms of the daily benefit amount,” she adds. The five participating companies in the partnership have a mandated minimum daily benefit rate of $150.

“The best time to buy long-term care insurance is when you’re healthy and before you reach senior citizen status,” says Jesse Slome, executive director of the American Association for Long-Term Care Insurance, the industry’s leading trade association. “Start looking at long-term care insurance when you’re in your mid-50s. That way, you can lock in a good rate.” To locate a long-term care insurance specialist, visit www.aaltci.org.

Federal and state governments offer tax incentives to individuals and businesses to purchase long-term care insurance. Check with your CPA when evaluating your options.
Regardless of a person’s net worth, long-term care insurance makes sense.

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