Long term care insurance may be purchased as an individual or through a business. Below is a reprinted article from MSN Money.

You probably don't need another bill to pay. But skipping this protection could destroy your finances, even long before you're old, or vaporize your kids' inheritances.

Many of us are counting on the government, disability insurance, our children or our own savings to take care of us in our old age.

Even thinking about nursing homes makes us nervous, too aware of advancing age. Maybe we have visited elderly relatives in a home and the thought of ending up there terrifies us. Or maybe we think we're too young to worry about it.

Not buying long-term-care insurance, however, can be one of the most-expensive mistakes you will ever make.

Medicare pays medical expenses. It almost never pays for custodial care, the kind of day-to-day care people typically need as they get older.

And Medicaid is welfare. You probably don't depend on welfare for your needs now, for many of the same reasons you wouldn't want to depend on it later. You would have to be impoverished or make yourself that way, though the latter is more difficult now because of changes in the law. And you wouldn't have much choice in who provided your care or where.

Take a tour of the assisted-living homes in your area that accept new Medicaid patients before you throw yourself at the mercy of the state.

Help you can't count on

Disability insurance and long-term-care insurance are not the same. Disability insurance replaces your income if you can't work; long-term-care insurance pays for your care.

"Disability coverage ends at age 65, while most LTC (long-term-care) claims begin after age 65," says Kyle Metcalf, the director of long-term-care marketing with HealthPlan Services, an administrator of insurance plans.

If you have kids, you may assume they will take care of you. They may be fine with that (it's best to check, though). But what happens if your kids are raising their own children and working long hours when you need care? Your daughter may want you to move in with her, but does your son-in-law? And what happens if you need more care than your kids can give 24 hours a day?

You could allocate savings to pay for your long-term care, and if you have substantial wealth, that may work for you. Families with more-limited savings may go through their money in two to three years. At $5,000 a month or more, long-term-care costs can quickly deplete your savings.

Long-term care isn't always just for a year or two at the end of a life. Someone with Alzheimer's disease, for example, could need care for 10 years or more. A person diagnosed with multiple sclerosis in his 50s could live for decades, and with good long-term care, he stands a better chance of staying independent and enjoying those years.

When should you buy?

Most experts recommend buying long-term-care insurance by the time you reach your 40s or 50s. The rates are lower at that age, but more importantly, you can't be locked out of the market at any time if you develop a medical condition.

Fran Carson, the president of Chapel Wealth Management, a financial-planning firm, had talked to his parents about long-term-care insurance. His mother and father were approaching their 60s, so there didn't seem to be any rush.

He says: "At 61, my father's health began to deteriorate, and he was diagnosed with Parkinson's disease. When my parents decided to look into it, LTCI (long-term-care insurance) providers wouldn't cover my father's pre-existing condition. The outlook for his future level of care will be financially exhausting."

At least Carson's mother was still able to purchase insurance for a moderate, locked-in monthly fee.

For some people, the need for long-term care comes suddenly. Randy Klein was in his 40s and healthy when he and his wife, Carol, went boogie boarding on Maui. It only took one wave, driving his head into one sandbar, to change his life. He was paralyzed from the neck down, and he needs care 24 hours a day. That's more than Carol can provide while she raises their four children and runs their business.

Randy's in-home care costs up to $75,000 per year. Fortunately, the Kleins had purchased long-term-care insurance six months before the accident.

"Having long-term-care insurance has given me choices," Carol says. "Because of this protection, I am able to have someone assist me with his care. I am able to be a mother to my children. I am able to continue to live a small piece of my own life."

How to get insurance

You can generally buy insurance from an agent or a broker. An agent works for one company and will usually, but not always, recommend that company's products. A broker represents many companies and theoretically can choose the best product for you.

Harley Gordon, an attorney and the author of "In Sickness and in Health: Your Sickness -- Your Family's Health," says the person's competence is more important than whether he or she is an agent or a broker. Ask your accountant or other professionals for a recommendation, and ask the professional about training, experience and professional designations.

You might also check out ElderLawAnswers, a clearinghouse of information on attorneys, agents and brokers in the business.

Long-term-care insurance is expensive if you wait until you're close to the time you're likely to need it. Compared with the potential cost of care, however, it's a deal. Metcalf, of HealthPlan Services, says a single 55-year-old can expect to pay about $1,075 a year for long-term care insurance. Married people pay less because they tend to take care of each other longer. If you ever need care in a nursing home, consider this: In 2006, the average cost was $66,795 for the year, or $183 per day. 

Standard provisions

Before 1993, long-term-care insurance had no government standards. Policies were hard to understand and often had riders that seemed skewed in favor of the insurance companies. For example, some companies canceled policies after a claim or didn't cover certain diseases such as Alzheimer's. Today, most states follow coverage standards developed by the National Association of Insurance Commissioners.

The following provisions are standard:

• A 30-day free look. You can cancel your policy at any time during the first 30 days and get all of your money back.
   
• Guaranteed renewability. A company cannot cancel your policy as long as you make your payments.
   
• An unintentional-lapse provision. An insured person whose faculties are slipping may forget a payment or two. If the missed payments are due to a cognitive or physical impairment, he or she has up to six months to catch up and reinstate the policy.
   
• Benefit triggers. Benefits may start when you need help with at least two "activities of daily living," such as eating, getting dressed, moving around or using the bathroom; your memory or thinking ability reaches the point that you need substantial help; or you need help for a medical reason.
   
• Home modification. You can get a lump sum to make your home accessible. For example, you may need wheelchair ramps or grab bars.
   
• Respite care. This takes over when your home caregiver needs to go somewhere or just needs a break.
   
• A waiver of premium. After you become disabled, your premium is waived.
   
• Exclusions. Most plans do not cover self-inflicted injuries, alcoholism or substance abuse. Coverage of mental-health issues varies; check your policy.

Additional riders

Remember when $10,000 a year was a decent salary? That wouldn't go far today.

Likewise, you can buy a generous-sounding long-term-care policy today and find it completely inadequate when you need it. The solution is to include an inflation-protection rider in your plan.

You can get simple- or compound-inflation protection at a predetermined rate or tied to the Consumer Price Index. Consider these points:

• Simple-inflation protection increases your daily benefit amount by the same flat amount each year. For example, a daily benefit that starts at $100 could increase by $5 a year.
   
• Compound-inflation protection increases every year based as a percentage of the prior year's benefit amount. This makes a huge difference in your protection over a course of years.
   
• Inflation protection based on the Consumer Price Index is probably the safest bet. If the U.S. sees double-digit inflation again, as it did in the 1970s, your benefit with this rider is likely to keep up with the cost of care.

If you are young and don't choose inflation protection, inflation can render your plan almost useless by the time you need it. The older you are, the less you need to worry about inflation protection.

Some other riders to consider:

• Survivorship. With this rider, if your spouse dies after you have been making payments longer than a certain period of time, your policy is "paid up," and you don't have to pay any more premiums.
   
• Nonforfeiture. This option means that if for any reason you stop making your premium payments, you can still receive long-term-care benefits up to the amount of premiums you paid into the policy.
   
• Restoration of benefits. Long-term-care plans generally have a limit to the total they will cover. With a restoration-of-benefits rider, if you recover from an illness or injury after receiving benefits, your full benefit amount can be restored. According to attorney-author Gordon, this benefit is most useful for younger people who are likely to recover fully.

How can you pay for it?

Long-term-care insurance sounds great, but who needs one more bill? When you understand how important long-term-care planning is, however, you may be able to find ways to make the premium payments. Here are some options:

• Ask your children to help. If your children are established financially, they may be interested in helping pay for long-term-care insurance. After all, their inheritance is on the line. And they may be relieved to know they won't be expected to quit their jobs and take care of you 24 hours a day if you become incapacitated.
   
• Get a reverse mortgage or line of credit. You may have equity in your home that you can use to pay for insurance or other needs.
   
• Buy a life insurance and long-term-care insurance combination. According to Discretion Winter, the manager of external communications at AXA Equitable Life Insurance, you can now buy hybrid life insurance products as an alternative to traditional long-term-care insurance. AXA Equitable offers a "living-care" rider to variable and universal life insurance policies. Under this plan, if you need care, the rider accelerates your life insurance death benefit. Your death benefit would be reduced by the amount accelerated.
   
• Check with your employer. Some employers now offer long-term-care policies as part of their benefits packages.
   
• Consider making premium payments instead of full contributions to your individual retirement account, if necessary. You might decide to make only half of your maximum IRA contribution and use the other half to pay for long-term-care insurance. You'll then be saving resources with your IRA contributions and protecting your resources with your insurance plan.

Tax breaks

If you have substantial medical expenses, you may get a tax break for your long-term-care insurance premiums. You can deduct the premiums with your other medical expenses, up to limits based on your age.

For 2007, those annual limits per person are:

• Age 40 or less, $ 290
• Age 41 to 50, $550
• Age 51 to 60, $1,110
• Age 61 to 70, $2,950
• Over age 70, $3,680

You can deduct your total medical expenses, including long-term-care insurance premiums, to the extent that they exceed 7.5% of your adjusted gross income.

When you receive benefits from your long-term-care plan, you generally don't pay taxes on them. For 2007, you can receive benefits of up $270 per day without paying tax.

Discuss your policy with your family

Deborah Snow Humiston's father told her that he had bought long-term-care insurance. Unfortunately, when her dad lost his memory, he lost any recollection of the name of the insurance company. Deborah's dad passed away in April, and Deborah and her siblings never found any documentation about his policy. Be sure to keep these important documents in a safe place and tell your family where they are.

It's also important to tell your family what kinds of care and facilities you prefer. It can be hard to make your wishes known after an injury or illness takes away cognitive or communication skills.

Published Sept. 27, 2007

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