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Fool.com: [Retirement] The Issue of Long-Term Care Insurance

(http://www.fool.com/retirement/care/03.htm)

The Issue of Long-Term Care Insurance

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newsletterLong Term CareThe Spectre of Long Term Care

Medicare, Medicaid, and Long Term Care

The Issue of Long-Term Care Insurance

Those Dratted Statistics Made Easier

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By Braze (TMF Pixy)

In the last two articles we've looked at long-term care definitions and

how Medicare and Medicaid may pay for the costs of needed long-term care

services. Now it's time to turn our gaze to the issue of long-term care

insurance. Given the potentially devastating costs of a nursing home and

our reluctance to deplete the family coffers, long-term care insurance may

be the answer to our problems. Certainly the insurance industry would

agree, as would many closely involved with providing the services

associated with long-term care. Yet, at least to these eyes, the answer

just isn't clear enough for me to say that insurance is appropriate for

everyone. And I'm not alone in that regard.

The United Seniors Health Council, a nonprofit consumer organization

devoted to the issues of the elderly, maintains that long-term care

insurance is appropriate provided it costs no more than 7 percent of your

retired income and:You have $75,000 or more per person in assets,

excluding a home and a car.

You have a retirement income of at least $35,000 per person per year.

You can pay the premium without adversely affecting your lifestyle.

You could absorb up to a 30% increase in future premiums if necessary.USHC

emphasizes those guidelines are not absolute because everyone's situation

is unique, and I agree. Still, these rules of thumb seem to make great

sense. After all, long-term care insurance is not cheap. As with life

insurance, the younger you are at the time of purchase, the cheaper it

will be. But even then the policy premiums vary widely in cost for

seemingly similar coverage. Due to costs, someone with fewer assets and a

lesser income may easily find policy premiums a huge burden that

significantly detract from a comfortable lifestyle today for a future

expense that may not occur. (We'll talk about that next week.) In the

lower income and asset ranges, even if the worst happened, long-term care

costs would quickly deplete assets, enabling the resident to qualify for

Medicaid anyway. That sounds bad, but in reality the resident's spouse

would still keep most of the marital income, the home, and a car. Yes, the

kids would inherit less, but the parents would still be provided for

during their lives.

At the opposite end of the spectrum is a retired couple with an annual

income of about $75K and assets of about $1 million. In that case, I also

have a tough time thinking insurance makes much sense. Both spouses could

enter a nursing home, pay the costs involved quite comfortably for a

number of years, and still leave a reasonable legacy for their heirs. Yes,

a long-term care policy might help them leave a bigger estate, but so

what? Again, the premium burden for something they may not need seems

unnecessary to me.

So who's left to buy this insurance? Those of us in that middle ground,

that's who. Should we buy it? That's a personal decision that should be

based on our own set of circumstances. This purchase is not as easy as the

ones we make when buying life, home, and car insurance. Those are easy,

particularly when it comes to comparing competing policies. That's not

true regarding long-term care insurance.

Long-term care insurance is a relatively new product for the industry. In

contrast to life insurance, which has been around for 200 years, long-term

care coverage has only been available for about 30 years. Today, about 120

companies write these policies, and only a few have done so for 20 years

or more. Thus, their underwriting procedures and actuarial forecasts are

not as reliable as those for other insurance products. That means the

potential for unexpected and large premium increases is great, and indeed

has already occurred in a number of instances. Additionally, these

policies vary widely in terms of cost, what they cover, and when they will

actually pay. Consequently, they are exceedingly difficult to compare,

particularly when it comes to all the bells and whistles with which they

may be configured. Worse, until recently the industry has had a sorry

record on benefit payments. In his book " Beat the Nursing Home Trap -- A

Consumer's Guide to Assisted Living and Long-Term Care, " author ph

s notes that for the decade ending in the mid-1990s:About 50% of

all policies lapsed before benefits were paid.About half of policyholders

who entered a nursing home never collected a dollar.When benefits were

paid, they were far below actual cost.Yes, things have improved since

then, but caution is still in order. Thus, if you're in a shopping mode,

you will need to be an informed consumer. But please don't expect to

receive objective, unbiased, or even knowledgeable information from the

person who wishes to sell you that product. Certainly that person won't

speak kindly of a competitor's policy, and sadly many agents don't fully

understand the provisions of the policies they are selling. While the

agent may mean well, that lack of understanding could mean the protection

you thought you bought wasn't really included under the legal terms

contained within the policy. Thus, recognize that you must do the

comparisons yourself or hire a third party to do them for you.

Where do you start? I suggest you do some reading first. Due to space

limitations, this series of articles barely scratches the surface of the

issues involved. Therefore, I strongly commend the following readings to

you ranked in the order of my highly subjective preference:

Beat the Nursing Home Trap: A Consumers Guide to Assisted Living &

Long-Term Care, available from Amazon.com for $20.85.Long-Term Care

Planning: A Dollar & Sense Guide, available from the United Seniors Health

ative for $19.50. " Shoppers Guide to Long-Term Care Insurance, "

available free on request from the National Association of Insurance

Commissioners, 120 West 12th Street, Suite 1100, Kansas City, MO 64105.All

make for sound reading from which you will gain necessary information to

ensure you are better prepared for making decisions regarding the purchase

of long-term care insurance. Most also contain worksheets you may complete

in comparing the various products available for the type of coverage you

may seek.

I can't and won't tell you to buy long-term care insurance. You have to

decide that issue for yourself. But in making that decision, I recommend

you do so from a strong knowledge base that can only come through some

diligent research on your part.

Next: Those Dratted Statistics Made Easier »

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