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Long-Term Care Insurance
Because of old age, mental or physical illness, or injury, some people find themselves in need of help with bathing, controlling bladder and bowel functions, using the toilet, eating, and moving in and out of a chair or bed. These six actions are called Activities of Daily Living, sometimes referred to as ADLs. In general, if you can’t do two or more of these activities, or if you have a cognitive impairment, you are said to need “long-term care.”

Many people think that long-term care is provided exclusively in a nursing home. It can be, but it can also be provided in an adult day care center, an assisted living facility, or at home.

Custodial Care vs. Skilled Care
Assistance with ADLs, called “custodial care,” may be provided in the same place as (and therefore is sometimes confused with) “skilled care.” Skilled care means medical, nursing, or rehabilitative services, including help taking medicine, undergoing testing, or other similar services. This distinction is important because Medicare and most private health insurance pays only for skilled care, and not custodial care.

Most major medical health insurance policies do not cover long-term care expenses, nor does Medicare or Medicare Supplement insurance. Long-term care insurance is about the only option that allows people to protect their assets and retain more control over their health-care decisions in this late-life situations. Those who do not have this preparation often have few alternatives but to spend down their assets until they qualify for Medicaid.

Should I buy long-term care insurance?
The average cost for one year in a nursing home is $40,000, but can be close to $100,000 in some big cities. Round-the-clock care at home can be just as expensive. Medicare does not pay these bills beyond a short period of time after a hospital stay. Health insurance rarely pays any of the cost. Unless you have so little money that you will qualify for Medicaid, or so much money that you can pay the bills out of your own pocket, you should consider long-term care insurance.

Reasons to buy long-term care insurance

  • Preserve your assets for your family instead of spending the money on long-term care.
  • The odds are one-in-three that a man over 65 will need long-term care; for a woman over 65, the odds are one in two.
  • New rules make it hard to qualify for Medicaid.
  • Premiums may be partially tax-deductible.

What’s the best age to buy long-term care insurance?
In general, it's a good idea to buy long-term care insurance before you’re 60. The younger you are, the less likely it is that you’ll be rejected when you apply for the policy. The premium is likely to be lower the younger you are as well, and once the premium is set, it stays at that amount for the life of the policy, unless the claims for the group of people who have bought that type of policy require that rates for the group be raised.

Under what conditions will the policy begin paying benefits?
The policy should state the various conditions that must be met. The common conditions are listed below:

  • The inability to perform two or three specific ADLs without help.
  • Cognitive impairment. Most policies cover stroke and Alzheimer’s and Parkinson's disease, but other forms of mental incapacity may be excluded.
  • Medical necessity, or certification by a doctor that long-term care is necessary.
     

What features of long-term care policies should I pay particular attention to?

  • The best policies pay for care in a nursing home, assisted living facility, or at home. Benefits are typically expressed in daily amounts, with a lifetime maximum. Some policies pay only half as much per day for at-home care as for nursing home care.
  • A benefit period that may range from two years to lifetime. You can keep premiums down by electing coverage for three to four years, longer than the average nursing home stay, instead of lifetime.
  • A waiting or "elimination" period. Premiums will be lower if you pay for an initial period of care yourself instead of electing first-day coverage.
  • Inflation protection is an important feature, especially if you are under 65 when you buy benefits that you may not use for 20 years or more. The best inflation provision compounds benefits at 5% a year.
  • Guaranteed renewable policies must be renewed by the insurance company, although premiums can go up if they are increased for an entire class of policyholders.
 

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