Long Term Care: Sizing Up New Wrinkles

Healthy, financially stable, and the mother of three grown children who would willingly take her in if need be, 69-year-old Barbara Eakle seemed an unlikely candidate for long-term care insurance. But after her husband died three years ago, buying a supplementary long-term care policy was one of the first serious financial decisions she made. "I didn't want there to be any problems for my kids," says Eakle, a part-time antiques dealer in Woodstock, Vt. "They're all wonderful, but I didn't think I'd be doing them any favors having them worry about what would happen if I got sick."

Luckily, today's long-term care policies are more flexible than the pricey nursing home-only coverage that agents pushed in the 1980s. Fewer restrictions meant Eakle saved nearly 30% on her $2,259 annual premium by forgoing a costly return of premium option that refunds some of your premium if your payments lapse.

TAX DEDUCTIBLE? New wrinkles in long-term care insurance are worth investigating, especially in light of the government's plan to reduce the growth in spending for Medicare and Medicaid benefits. More than 12 million older Americans will require some form of long-term care by 2020, according to the Health Insurance Association of America (HIAA). Neal Slafsky, a financial adviser at Lincoln Financial Group in Boca Raton, Fla., recommends long-term care coverage for anyone approaching age 50 with a net worth of $250,000 and upwards. Those with a net worth in excess of $1 million may be able to cover long-term care expenses without insurance, but it's not an asset-protection strategy he advocates. For those who do purchase a policy, it's better to buy at a younger age because the premium triples from age 50 to 70.

If the GOP and President Clinton ever agree on a final budget, one of the less-controversial items with a good chance of passage will give consumers new incentive to buy long-term care coverage: The premiums would be tax-deductible, and any benefits collected would be exempt from the beneficiary's taxable income.

Before buying, shop around to determine which new riders and policy twists are appropriate for you. Many insurers are now offering a pooled-dollar approach that allows you to allocate the full benefit amount among any services covered under the contract. Traditional policies provide a daily stipend for nursing home and/or alternative care. John Hancock Mutual Life Insurance recently introduced a shared-care rider for couples that permits either spouse to use the benefits from the other's policy.

Recognizing that a growing number of people are receiving care in their own home from family members rather than in a nursing home, UNUM Life Insurance offers a more expensive total home-care policy that pays benefits from $1,500 to $6,000 per month for nonprofessional services, says Stephen Meahl, UNUM's vice-president for long-term care. But critics charge that relying on nonprofessionals may not be the best option. "To get this kind of flexible benefit may increase the premium by 20% to 30%," says Slafsky.

BELLS AND WHISTLES. Don't assume you can tack on riders as needed. Changing your mind later costs more and entails repeating the whole qualifying process--a dangerous proposition as you get older, says Mary Wenum, assistant vice-president of insurance products marketing at Lutheran Brotherhood in Minneapolis.

Also beware of benefits that do little more than jack up the price. "Since insurers have refined the policies, they want to sell you the Cadillac model when a Chevy could get you to the same place," says financial planner Deena Katz, president of Evensky, Brown & Katz in Coral Gables, Fla. Nonforfeiture riders--which allow you to collect a reduced benefit if you eventually stop paying--are the most controversial. This benefit increases premiums as much as 30%, says Gail Schaeffer, vice-president for retail long-term care at John Hancock in Boston.

Perhaps the biggest hidden cost is potential rate increases. Some insurers may promise more benefits than they will be able to support. So look into a company's history on raising premiums from an independent rating service such as A.M. Best. Quality policies are guaranteed renewable, and premiums should remain fixed unless raised for an entire group of policyholders, according to the HIAA, which offers a free booklet, Guide to Long-Term Care Insurance (800 942-4242).

No one wants to buy something they think they'll never have to use. But the reality is that more people will be responsible--either in their home or a nursing home--for their own long-term care. If you choose properly from the multitude of policies available, growing old doesn't have to mean going bankrupt.

A Long-Term Care Checklist


-- The option to choose nursing home or at-home health care

-- Minimum of three years of coverage with a daily stipend of $110 (based on the national average cost of nursing home care)

-- Inflation protection: 5% of daily benefit compounded annually for under age 75; 5% of daily benefit added to policy annually for 75 and older

-- Benefit trigger based on cognitive impairment and/or inability to handle two activities of daily living (such as getting dressed and feeding oneself)

-- An Alzheimer's definition that specifies cognitive impairment


-- Reservation that guarantees you a bed at a particular care facility for a set number of days per year

-- A geriatric-care manager to oversee care

-- Payment to make modifications to your home, such as adding a wheelchair ramp

-- Short in-patient stay for beneficiary if caregiver needs relief

-- Ambulance transportation to and from the care facility


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