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Long-Term Care Insurance

The thought of spending their final days in a nursing home scares many seniors. The thought of paying for it, though, may be even more frightening. The cost of a year in a nursing home now averages more than $70,000, or $192 a day, according to one comprehensive study. And it is likely to continue going up at a rapid rate. One factor driving prices up is that people are living longer. In the days when people typically lived for only a few years after retiring, only a small percentage of the population needed nursing home care. Today, it is not unusual for seniors to live into their 90's. The older an individual is, of course, the more likely it is that he or she will need nursing home care. The odds that someone who is 65 will need long-term care are 40%, but by age 75, the odds jump to 60%, according to the U.S. Department of Labor.

It is difficult to know in advance who among us is going to need long term care. Individuals who require long-term care are commonly not sick in the traditional sense, but instead, are unable to perform the basic activities of daily living such as eating, bathing, using the toilet, walking, and so on. As a result of advanced age, injury, or illness, some of us may require long-term care to accomplish these basic, every day activities. Long-term care refers to assistance with the basic, daily activities that most of us can do on our own. If you or your spouse are past age 50, here are some important facts about Long-Term Care insurance that you need to know:

What is the likelihood that a healthy middle aged individual will need long-term care?

Contrary to popular belief, the likelihood is pretty high. A current study shows that 60% of people age 65 will need long-term care at some point in their life. This number is expected to rise as the life expectancy continues to increase, further increasing the probability that people will need long term care in their senior years.

What is the need for long-term care insurance? Medicare and Medigap insurance will cover these costs.

The fact is that Medicare covers a very limited nursing home stay and under very restrictive circumstances. Currently, Medicare requires that the nursing home care follow a brief hospital stay only and Medicare provides no coverage in excess of 100 days. Considering the average length of stay in a nursing facility exceeds 2 years, an individual would need to bear more than 80% of the cost. Medigap and Medicare supplement policies are focused on covering the deductibles and co-payments but provide no relief for long-term care.

Long Term Care Insurance Essentials

If I divest my assets, won’t Medicaid pay the bill?

Medicaid will indeed pay the long-term care costs for any eligible person. However, divesting oneself of assets remains a big “if.” Under a new law, a person must divest their assets 5 years prior to becoming eligible for Medicaid. In essence, a person is forced to divest at an earlier age when they are in near perfect health and live in poverty just to protect them. Many delay this action and are often left uninsured when an illness sets in.

Are there any cost savings in a purchasing policy together with a spouse or a group policy though a business?

A husband and wife purchasing policies together receive a discount in premium.

Five or more people purchasing a group policy through a business currently receive a 10% discount. It should be noted that a person and their spouse are two policies. If a business has two partners, each partner can purchase two policies and together with any employee can receive the group discount.

A group of 20 or more can receive a discounted group long-term policy without any medical underwriting. This is ideal for high risks who have been turned down by other companies.

What is the tax implication on premium payments and benefits received from a long-term care policy?

All benefits received are tax-free. Premium payments made through a company are all or partially tax deductible, depending on the type of corporation.

Why should I begin paying premiums at age 50? I could simply wait to take out a policy at a later age, closer to the possibility of making use of the benefits.

There are a few answers to this question:

40% of people receiving long-term care in the U.S. today are between the ages of 18-64.

The premium for long-term care insurance is based on age at insurance. The premium for long-term care benefits for a 65 year old is about double the premium for the same benefits for an insured age 50.

The projected annual cost of nursing care is increasing at an annual rate of 7% - or doubling over the course of 15 years. A policy with a compounded benefit face amount will keep pace with the rising cost of care. If the same insured waits 15 years to purchase a policy, the insured would need to buy a higher benefit face amount than the insured would have needed to purchase 15 years earlier. Combining this with a later age of issuance brings the total premium to about 5 times the amount it would have been at age 50 (see chart).

Example: 5 year benefit;

               2006 - $250 compounded daily benefit

               2021 - $500 compounded daily benefit

              * Rates are for illustrative purposes only.

The cost of a lifetime benefit is too high and unaffordable. Can one obtain additional coverage for a very lengthy illness?

The cost to purchase a lifetime benefit is indeed prohibitive to many people. However, a person could still obtain additional coverage through other ways. Here are two of the multiple options that can be explored:

ShareCare Plans – A husband and wife can purchase a share care benefit that allows on spouse to “borrow” unused days from the other to cover a lengthy period of care. The negative ramification is that the health spouse now has a reduced benefit period.

NYS Partnership Plan – Many leading companies sell plans through the New York State Partnership. These plans provide a three year benefit period. When the benefit period runs out, the insured can receive 100% of the coverage from Medicaid without divesture of assets. The policy is used to purchase an affordable policy with unlimited benefits does not require divesture of assets.

Invest now to secure your future and save on premiums in the long run. For more information and to find out which policy is best for you, please feel free to contact Group Coverage, Inc.

Chart of Long Term Care Analysis Man in Wheelchair and Family Woman Walking with Nurses Aide