Long-term care insurance key component of coverage

Mike Scottt is with Barker Phillips Jackson, an employee-owned independent insurance agency.

Many small-business owners want to provide all they can afford for their employees and themselves. Most will consider a benefit for their employees if it makes sense and is affordable. With individual long-term care insurance, the problem is being able to get coverage for you and your small company, or even just you as an individual. First, let's look at why you need long-term care insurance.

You should consider buying long-term care insurance if you:

have spent your entire working life trying to make a living and want to protect your assets in case you need long-term care;

want to transfer all or a part of the risk of your potential long-term care expense; and

are a small business owner and would like to shelter some money.

As an individual, you will want to protect yourself and your assets from being used for your long-term care needs. Generally, with the plans available today, you can transfer all or part of that risk by purchasing long-term care insurance. Important things to remember as an individual purchasing long-term care insurance are:

A pre-existing condition clause What is the definition of a pre-existing condition with your proposed carrier?

Is this an indemnity policy or a reimbursement policy? Indemnity policies will pay a specified amount of money for a certain time frame according to the policy limits regardless of the actual costs. A reimbursement policy will only pay what the actual costs were up to the stated policy limits.

As a small-business owner, you may qualify for some tax savings by purchasing an individual long-term care insurance policy. If you are a sole proprietor, an S-Corp, C-Corp, LLP or LLC, you may be able to deduct the majority of the cost of premiums for you and your spouse.

Review the policies carefully and read the National Association of Insurance Commissioners' long-term care insurance buyers guide. Agents or insurance companies that offer long-term care insurance can provide this valuable resource.

Consider an inflation protection rider as a supplement to the monthly benefit. If you do not know what to do, consider the cost, consider the value of that and try to remember, in the past 10 to 20 years, what you have purchased that has gone down in price. Look carefully at the inflation rider.

Business owners also should buy long-term care insurance from a trusted advisor. This is asset protection for you, so you must be comfortable with the purchase. Many people act emotionally on these issues, but these must be thoroughly thought out, with a clear expectation of the policy and a clear objective for your financial future.

Buy your long-term care insurance from a rated carrier. Virtually all insurance companies subscribe to rating services such as Moodys or A.M. Best. Make sure you are comfortable about the financial stability of the carrier. No one wants to spend $3,000 to $4,000 a year for long-term care insurance for them and their spouse, only for the policy to be of little value because the carrier went out of business.

Compare policies for monthly or daily benefits. Typically, you can buy as little as you wish to as much as you want, if you can afford it. Again, consider the inflation protection riders.

Compare the definitions of facility care and home care. Some carriers will not pay benefits for you at home, unless you are receiving professional licensed nursing care.

Make sure you know what triggers the long-term care insurance benefits. Most companies require a loss of two of the six activities of daily living. Some companies will count two concurrent activities of daily living as one, or will define each as needing help for the entire activities of daily living, not just partially. For instance, you may be able to bathe yourself, but cannot because you must have help to get from the bed to the bathroom. Some companies will define that as a loss of two activities of daily living and some will define it as a loss of one activity of daily living.

Long-term care insurance should be an important consideration for everyone as they plan their own personal health and wellness plan. Determine your risk tolerance, estimate your long-term care needs and look carefully at all of your options for long-term care insurance.

While it is impossible to explain every avenue available to you and to meet every need in this article, you should have a solid and more educated grasp on the subject. Please consult your tax advisor on your specific situation, but keep an open mind about long-term care insurance.