taken from the October 2003 AAUP AZ Advocate

An Investment To Protect Assets

Long Term Care Insurance

By Jay E. Zandell,

Consultant to Financial Directions LLC,

A Registered Investment Advisor

Faculty and staff over 50 often look for ways to protect their investments in their home equity and retirement savings.

One way to safeguard your assets has nothing to do with stocks, CDs, or money markets -- Long Term Care Insurance. It’s a way to insure assets, as well as future access to quality healthcare.

Roughly 50% of Americans over the age of 50 will need long term care at some point in their lives. The national average cost of nursing home care (or home health care assistance) is $61,000 per year, and the average stay in a long term care facility is just under 3 years.

Most individuals have homeowner’s insurance, where the chance of a house fire is one in 1,200. Yet according to a recent study, if you are age 65 or over, you are ten times more likely to find yourself in a nursing home this year as you are to have your house burn down.

What Exactly Is Long Term Care? Long term care is the assistance you may need if you become unable to care for yourself because of prolonged illness or disability.

Generally, a person becomes eligible for Long term Care Insurance (LTCI) benefits when he or she is unable to perform any two of six "Activities of Daily Living" (bathing, eating, dressing, toileting, continence, and transferring—say from a bed to a chair). People with Alzheimer’s disease or severe cognitive impairment are also eligible as well as those who receive doctor-certification that they require care for at least 90 days.

LTCI provides coverage for such care, whether received in your own home, an assisted living facility, or a skilled nursing facility. In fact, one of the advantages of LTCI is that it allows you to make your own healthcare choices.

Medicare Doesn’t Cover It. Medicare pays for just a very small percentage of nursing home care, and eligibility is relatively restrictive. For a nursing home stay, Medicare requires that you must be hospitalized for at least three days and must receive skilled care daily. In addition, you must enter a Medicare-approved facility and stay in a Medicare-approved bed.

Under these conditions, Medicare covers all eligible expenses for the first 20 days. For days 21-100, you first pay a co-payment of $105.00 per day; Medicare pays the difference. After 100 days, Medicare ceases to pay altogether.

In other words, Medicare is designed to cover short term recuperative care. But for most long term care patients, the average period of care exceeds 900 days. And unless you are impoverished and qualify for some form of Medicaid (public aid), you are responsible for those expenses. That’s where LTCI comes in.

Timing of LTCI. The younger and healthier you are, the more insurable you’ll be—and the lower your premiums. Already in your 70s? If you’re in fair health, chances are you’ll be able to obtain coverage.

Once your policy is in effect, premiums never increase due to changes in your age or health. Premiums remain level unless your insurance carrier raises premiums for an entire class of policyholders in your state. Most policies are guaranteed renewable, which means that the company cannot cancel the policy or reduce benefits regardless of age.

Factors to Look for in a Policy. LTCI has been available for more than 30 years. During that time, different policies have evolved to have a number of design features to consider when evaluating a plan:

Coverage: A good LTCI plan includes coverage for nursing home care, home care, adult day care, assisted living facility care, hospice care, and homemaker or companion services. In addition, the plan should cover your pre-existing conditions and offer complimentary care management and consultation, for mapping the course of care.

Daily Benefits: LTCI benefits range from $50-$500 a day. A choice should be driven by the cost of living in your area and the actual long term care costs in your region. An insurance agent should be able to provide this information. Because healthcare costs are rising faster than the cost of living, you may wish to purchase an optional inflation rider, which automatically increases your daily benefit at regular intervals.

Benefit Duration: Most LTCI carriers offer a choice of two, three, four or five year benefit durations, as well as an unlimited duration. The longer the benefit duration, the higher the premiums.

Insurance Carrier: Ask for the industry ratings on any prospective insurer. Rating services such as Standard and Poors and A.M. Best evaluate insurance carriers based on their financial condition and claims paying ability. A strong, solid company will be eager to provide you with its current ratings.

How to Obtain LTCI: LTCI is generally available on either an individual or group basis. If you are working, ask your administration if your institution offers a plan. If not, ask if your spouse, children, or even your children’s spouses whether they can obtain LTCI at work. Group LTCI coverage is often available to extended family members.

Otherwise, find an independent agent who specializes in LTCI. An independent agent represents multiple companies, so he or she can find competitive plans. In addition, a knowledgeable agent will be able to help design the right plan for you.

Jay E. Zandell, serves as a consultant to Financial Directions LLC, A Registered Investment Advisor. Mr.Zandell is the Southwest Regional Director of MAGA Limited, an insurance agency that has specialized in long term care insurance since 1975 and located in Phoenix, AZ. Financial Directions LLC may be reached at (520) 408-7777. Jay may be reached at 602-723-9300 or 1-800-533-MAGA, and at www.magaltc.com.