Do you need long-term care insurance? Look at the facts

Now that 2005 is winding down and the holidays are upon us, I think it's time to face the facts and address a subject none of us want to think about: long-term care insurance.

Fact No. 1: A research study in May, 2005, sponsored by the Society of Actuaries Committee on Post-Retirement Needs and Risks, reports that most Americans underestimate their likelihood of needing long-term care. Relatively few consumers either own long-term care insurance or can afford to pay for extended care on their own, according to the report.

Fact No. 2: MetLife Inc. put the average daily rate of private nursing home care in 2004 care at $192. The swing is significant based on geography-from $561 a day in Alaska to $99 a day in Louisiana.

My advice? Get informed. Here are the questions I'm asked most frequently about long-term care insurance:

Who is LTC insurance suitable for? Long-term care can be expensive. If you can afford it, you should at least consider it. People with $500,000 in assets or less need to preserve their funds - both for themselves and, hopefully, their heirs. And the question for people of high networth is: Why not pay pennies on the dollar instead of paying dollar for dollar?

How much does it cost? It varies, depending on the type of policy; how old you are when you apply; and your health. Typically, most policies range from $3,000 to $5,000 a year.

What does it cover? Depending on the contract, it covers any nursing home or institutional setting - semi-skilled, adult day care and managed care all the way up to condo-type health care homes. It also covers in-home health care, both by professionals and family members.

What doesn't it cover? It's not medical insurance. If you go to a hospital for a procedure, it won't cover your medical payments. It also typically doesn't cover non-traditional therapies such as acupuncture or heavy-dose vitamin therapy.

How do you calculate the coverage you need? Look at your family medical history. Are you married? Married people tend to live longer. And consider your financial situation: How much can you afford? Also, where do you live? Costs of long-term care vary according to geographic regions. People who have longevity in their favor and a good health history may want to contemplate it when they retire. If you don't have that in your favor, it may be something to look at when you're in your 40s.

Does the premium lock in? No. This is a fairly young product that didn't take hold until the 1980s. As a result, insurance carriers had limited claims experience with it and, in some cases, the companies did increase premiums from 10 to 40 percent. But they can't raise premiums without first filing a request with your state insurance commissioner, who must approve it. A 40 percent premium hike may sound like a lot on a pure percentage basis, but on a true dollar basis, it can still be a good value.

What kinds of options are involved? You can buy inflation protection, at a simple or compounded rate. There are shared care options on some policies, where the balance of the policy is extended to a surviving spouse. And there are "limited-pay" policies, which are intended to insulate you from future rate increases. These are all matters to discuss with your financial advisor.

What triggers the insurance benefit? Basically, it's the inability to perform two out of five activities of daily living, and every contract has this. Think about what you do within the first 15 minutes of waking up: getting up out of bed; getting dressed; going to the bathroom; taking your medication; feeding yourself. If you are unable to perform two of those activities, it triggers the benefit. In a separate category, qualifying on its own, is cognitive impairment: Do you know who the president is? What day it is? Who you are? Ultimately, a physician will make a ruling on the impairment. Some contracts allow your own personal physician to make that call rather than someone hired by the insurance company.

Finally, what are the steps to planning for LTC insurance? First, think about situations in your own life or people you know where this need hasn't been met. Second, do some research; the major carriers may be a good place to start. A financial adviser or an independent insurance-licensed professional can help. For information, e-mail to or call 689-8704.

-- William Creekbaum, MBA, CFP, a Washoe Valley resident, is senior investment management consultant of SmithBarney, a financial services firm serving Northern Nevada at 6005 Plumas Street, Ste. 200 Reno, NV 89509.


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