The cold, hard facts about long-term care and insurance

Almost everyone knows the merits of life insurance - the umbrella for that rainy day.

But few of us consider that perhaps a bigger need is for long-term care insurance - coverage for the unfortunate event that you or a loved one becomes incapacitated or disabled and unable to care for yourself. Indeed, 75 percent of Americans have made no preparations for long-term care. Well, it's time to face the hard facts about long-term care.

Fact one: Today, approximately 9 million Americans over the age 65 will need some form of long-term care, and that number will reach 12 million by 2020.

Fact two: Don't let youth lull you into a false sense of security. Although the majority of people who require long-term care are over the age of 65, a substantial 40 percent are between ages 18-64.

Fact three: The cost of long-term care can be expensive. According to the Genworth Financial 2007 "Cost of Care Survey," the average daily rate of private nursing home care is $204.

But that figure could go as high as $539 a day in Alaska to as low as $119 a day in Louisiana. Las Vegas is $205 a day and the rest of the state of Nevada is $212 a day.

Whatever the cost, will you be able to shoulder these expenses on your own?

However, it's never too late to evaluate your long-term care needs. Here are some factors I believe you should consider.

Who is a suitable candidate for long-term care insurance? Single people with no one to look after them in case of a debilitating accident or illness should consider taking out a long-term care policy. Since they tend to live longer than men, women are also ideal candidates for this insurance coverage. Finally, anyone who wants to protect a burgeoning nest egg should contemplate it. Long-term care costs can wreak havoc on your finances.

Is it costly? It varies, depending on the type of policy, how old you are when you apply and your health. Typically, most policies may range from $3,000-$7,000 a year.

Couples typically receive some type of discount.

What does it cover? Depending on the contract, a typical long-term insurance policy covers any nursing home or institutional setting - semi-skilled, adult daycare 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. Of course, the higher your premium, the more long-term care you will be able to afford.

What doesn't it cover? Long-term care insurance is not medical insurance. It does not cover hospital stays nor will it cover any medical payments. Long-term care policies also typically do not cover acupuncture or heavy-dose vitamin therapy.

How do you calculate the coverage you need? People who have good health records and whose ancestors have lived long lives may want to consider purchasing a policy before they retire.

If your family has a history of early mortality, long-term care insurance should be something to contemplate when you're in your 40s.

Are you married? Married people tend to live longer and thus are likely to wind up needing long-term care.

How much can you afford? Long-term care costs tend to be pricey and vary according to geographic regions.

Is the premium locked in? No.

In some cases, premiums have risen as much as 40 percent. However, there is a modicum of protection from excessive rate hikes: Premiums cannot be increased without first receiving approval from your state insurance commissioner. It may seem 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 additional insurance meant to provide 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. 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? 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 and feeding yourself. Most policies cite the inability to perform two of six daily activities for at least a period of 90 days for the insurance benefit to kick in.

In a separate category, 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 policies will allow your personal physician to make that call rather than someone hired by the insurance company.

Long-term care insurance should be looked at in the context of all your financial assets and liabilities. While there's plenty of information on the Internet about long-term care insurance and most of the insurance underwriters have educational sections on their Web sites, nothing beats talking to a qualified financial advisor to help you figure out what's suitable for you.

For more information, e-mail william.a.creekbaum@smithbarney.com or call 689-8700.

Smith Barney does not provide tax and/or legal advice. Please consult your tax and/or legal advisors for such advice.

• 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.