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Under Cover: Long-Term Care Insurance Must Provide For a Variety
of Options
by Jane Adler,
Special to the Tribune
From The Chicago Tribune, March 19, 2000
Every month, Jerry Good receives a bill for $5,300 from the nursing home
where his 90-year-old mother lives. And every month, Good (not his real name)
writes a check from his mother's account to cover the cost.
Luckily, Good's mother had savings of about $200,000, so at least she had
enough money to get into a pretty nice nursing home. He doesn't resent the
situation, but Good, who represents a lot of people like him, watches every
month as his inheritance dwindles -- money that he could have used to pay for
his own kids college education.
He also wonders what will happen in 20 years when he, or his wife, might need
some type of in-home or nursing care. Will his kids have to foot the bill during
his old age?
Scenarios like this start people thinking about the benefits of long-term
care insurance. And for those in late middle age, long- term care insurance can
be a good way to pay for future nursing home care, or for caretakers to help you
at home if you don't want to move.
"Medicare and health insurance won't cover long-term care in a nursing home,
assisted-living facility or in your own home," said Murray Gordon, president of
Deerfield-based Maga Ltd., an agency specializing in long-term care insurance.
"Long-term care insurance does."
If you think you won't need long-term care (and who ever does?) the
statistics are quite convincing. About 1 out of every 2 people who reach their
50s will need long-term care during their lifetime, according to the U.S.
Department of Health and Human Services.
Also, approximately 60 percent of women in their mid-70s will need long-term
care. With the average nursing home stay of about 3 years, the cost can add up
to as much as $180,000. And if you are in your 50s now, the tab for nursing care
by the time you need it could be much higher because of rising costs.
Susan M. Lathrum, a certified financial planner in Milwaukee, says long-term
care insurance isn't a good idea if you're either rich or poor. If you have a
lot of money, probably several million dollars in assets, you can cover the
costs of long-term care yourself.
If you are poor, then Medicaid (not Medicare) will pick up the tab.
"The large middle class is very vulnerable," said Lathrum.
Two other important factors to consider are your age and health. Most
companies that offer long-term care insurance won't accept people who are more
than 84 years old.
If the companies did write policies for this age group, few people could
afford the premiums anyway. You also need to be in reasonably good health in
order to get a policy.
"People tend to wait too long to apply for a policy and then they are
uninsurable," Lathrum said.
Shopping for a policy is like shopping for a new car, says Gordon of Maga
Ltd., which works with a number of insurance companies.
"There are so many choices," he said. "You can buy something basic, a luxury
model or something in the middle."
Options include the amount of the daily benefit (from $50 to $250 a day), and
the policy duration, or how long you will receive the benefits. There are other
options to consider as well.
Gordon suggests that you look for a policy with a rate guarantee, in other
words, the yearly premium can't be changed for 5 or 10 years. Companies that
offer lots of benefits at a low price may just be waiting to jack up the yearly
premium.
"Don't shop price," said Gordon.
It's important to know what triggers the payment of benefits. This gets a
little complicated, but most policies pay benefits when you need help with two
activities of daily living (eating, dressing, bathing, using the toilet, etc.),
or you have some type of cognitive impairment.
Gordon suggests that you find a policy where the diagnosis is determined by
your own physician, not by the insurance company's medical staff.
"Your health situation should be judged by your doctor, who doesn't have a
vested interest in you not getting the benefits," he said.
Also, look carefully at the exclusions in the policy. Many policies don't
cover depression, but most will cover Alzheimer's disease or dementia.
Financial planner Lathrum says there's little standardization among long-term
care policies because it's a relatively new type of insurance, unlike homeowners
or auto insurance.
If you are buying long-term care insurance, she said, "You can't just compare
costs. You have to understand the contract. Unfortunately, some contracts have
language in them that makes it difficult to get the benefit at the time of the
claim."
The cost of a policy, like all life insurance products, will depend on your
age at the time of purchase and the policy options you select.
For example, a policy purchased at age 55 that provides four years of care at
$100 a day either at home or in a nursing facility, costs less than $500 a year.
The same coverage, if purchased at age 75, costs $2,757 a year.
You may be able to get a long-term-care policy through work. More and more
companies are offering these policies in their menu of employee benefits.
Usually the long-term care insurance can be used for yourself, or for your
parents -- a really nice option.
Resources
Maga Ltd. offers a free pamphlet on long-term care insurance that describes
how it works. The brochure also answers some frequently asked questions. For a
copy call 1-800-533-6242.
