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The Case for Long Term Care Insurance

Over the course of a lifetime, we save and invest to meet many goals. A comfortable retirement may include travel and time with loved ones and friends as we age gracefully and enjoy a long, full life. With healthy lifestyles and advances in medicine, living longer is a real possibility but there may be a greater chance of needing long-term care services. According to information provided by the U.S. Department of Health and Human Services, about 60 percent of individuals over age 65 will require at least some type of long-term care services during their lifetime.¹

Long-term care services can be expensive but there are choices for paying for these services should the need arise:

• Spend your savings and investments (paying out-of-pocket)
• Ask your family and friends to provide and pay for these services
• Rely on government programs to cover the cost of care
• Liquidate your assets (reverse mortgage)
• Purchase long-term care insurance

Your Savings and Investments

Using your retirement savings and investments can present a risk to your financial plan. Even if there is a modest need for assistance, the cost could become significant. Based on information from the U.S. Department of Health and Human Services, a visit from a home health aide 3 times a week would costs about $16,000 a year - based on 2006 average costs. You may not need assistance for 10, 20 or even 30 years from now. How much will the cost of care rise during this period?

Family and Friends

They want to help you in some measure because you have been there for them. You should consider the time commitment and financial impact your long-term care needs may have on them. Family caregiving is already a fact for many Americans. Caregivers face challenges that affect not only their personal activities but also their work and career as well. Let them offer caregiving out of compassion instead of out of necessity.

Government Programs

Many Americans are surprised to learn that Medicare and most health insurance plans - including Medicare Supplement insurance - do not cover long-term care². Each program has specific rules for what types of services each covers, how long one can receive services, eligibility for coverage, and, in some cases, cost sharing.

Medicare will help pay for a limited skilled nursing facility stay, hospice care or home health care if you meet certain conditions. There is a limit of how many days Medicare will pay for these services. Visit www.medicare.gov for more detailed information regarding Medicare.

For those with limited incomes, few assets and available resources, Medicaid is a joint federal and state government program to help pay your medical costs. If you have Medicaid, you may receive coverage for services such as nursing home and home health care - if you meet the eligibility requirements. Medicaid is managed by each state. To determine which state agency manages Medicaid in your state and obtain more information, visit www.govbenefits.gov.

If you are a veteran, the VA may provide long-term care for service-related disabilities or for certain eligible veterans. If you qualify, the benefits can provide financial assistance for some long-term care costs. Co-pays may apply depending on your income level. Visit www.va.gov for additional information regarding veteran long-term care benefits and eligibility requirements.

Reverse Mortgages

A reserve mortgage is a special type of home equity loan. You receive cash against the value of your home without selling it. You choose whether you want to receive a lump-sum payment, a monthly payment, or a line of credit. There are no restrictions on how you use reverse mortgage funds and they can be used towards LTC or a LTCi policy. However, it is important to note that when you sell your home, no longer live in your home permanently, or when you die, you or your estate will have to repay the money back that you got from the reverse mortgage. You will also have to repay any interest and other fees. Sometimes there are limits on how much money you can borrow. The amount you borrow might not be enough to pay for your long-term care needs.³

Purchase Long-Term Care Insurance

Long-term care insurance allows you to transfer the risk of long-term care costs to an insurance policy that is available immediately. Long-term care insurance is not the right choice for everyone. The National Association of Insurance Commissioners (NAIC) publishes "A Shopper's Guide to Long-Term Care Insurance" which suggests whether long-term care insurance is right for you.

The benefits of purchasing long-term care insurance are many:

• Your earnings and investment portfolio is used to pay the policy premiums instead of the actual cost of care.
• Once you meet eligibility and policy requirements, benefits are immediately available to you.
• The benefits paid and applied towards long-term care expenses are not considered taxable income if you purchase a TQ (tax-qualified) policy.
• Having a long-term care insurance policy in effect could provide you with an additional tax deduction, subject to your age, income and other factors.
• Your spouse/partner could continue to maintain the same standard of living if your earnings and investment portfolio are not needed to pay for long-term care expenses.
• Your retirement portfolio is used for what it was designed to do – to help you enjoy your retirement.

Whichever method you choose to cover long-term care services, it should address your concerns, fit your budget and provide the level of care you deserve, so it is the right plan for you.

1. Understanding LTC, Definition and Risks, U.S. Department of Health and Human Services, National Clearinghouse for Long-Term Care Information, January, 2007, http://www.longtermcare.gov/LTC/Main_Site/Understanding_Long_Term_Care/Basics/Basics.aspx
2. Own Your Future, Planning Guide for Long-Term Care, U. S. Department of Health and Human Services for Medicare and Medicaid Services, page 1, Publication number CMS-11026, December 2002
3. Paying for Long-Term Care, Home Equity Conversions, U.S. Department of Health and Human Services, Medicare website, April 2007, http://www.medicare.gov/LongTermCare/Static/RevAnnMortgages.asp?dest=NAV|Paying|HomeEquity|ReverseAnnuity

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