Long-term care insurance protects assets

Probability
People who reach age 65 will have a 40 percent chance of entering a nursing home, and according to Medicare.gov, about 10 percent of the people who enter a nursing home will stay there five years or more. According to the 2003 MetLife Market Survey of Nursing Home and Home Care Costs, the average cost of nursing home care is approximately $66,000 a year, and in some locations can be much more. The average daily cost of a home visit by a visiting nurse is $145. (Note: Average annual cost of nursing home care is based on an average daily rate of $181. Average daily home visit cost is based on an hourly rate of $18.12.)
Could you afford extended long-term care? Even if you feel that you could, why take on that financial burden when there’s an alternative to paying these expenses out of your own pocket? Think about purchasing a long-term care insurance policy – the annual premium may cost less than one month’s stay in a nursing home. Long-term care insurance can help protect your assets and allow you to choose the type of care you want.

Medicare and Medicaid
You may think that if you ever need long-term care, the costs will be covered by Medicare or Medicaid, and therefore, there is no reason for you to have long-term care insurance. Medicare pays only for medically necessary skilled nursing facilities or home health care. But these services are only covered on a part-time basis,
and recipients must meet certain conditions to receive payment. Medicare also pays nothing for simple, long-term custodial care such as help with dressing and bathing.
Medicaid is a welfare program with rules that vary by state. Medicaid’s nursing home and home care coverage is generally limited to people who have low incomes and few assets.

Long-term care insurance
You can purchase long-term care insurance for yourself or for your parents. Many people purchasing long term-care for themselves are 55 or older with at least $200,000 in assets. If you have elderly parents, you may wish to consider purchasing long-term care insurance for them.
A range of policies is available, designed to fit a wide variety of pocketbooks. Comprehensive plans can provide coverage for nursing home care, at-home care, adult day care, therapy services, paid companions, transportation services and professional advice on plans for care. You can lower the premiums by selecting a more limited plan. Your choice of the daily benefit amount, the benefit period and the “elimination” period, which is like a deductible, also will affect the cost of your plan.
Some companies offer inflation protection riders that increase your daily benefit amount. The most comprehensive inflation protection, especially for buyers in their 60s or younger, increases the daily benefit amount by 5 percent a year, compounded annually.

Tax benefits
Tax laws consider premiums for qualified long-term care policies a medical expense. Therefore, to the extent that your nonreimbursed medical expenses, including your long term-care premiums, exceed 7.5 percent of your adjusted gross income, you may be able to deduct all or a portion of your premiums. Benefits paid by long-term care policies are not taxable as income, however, Smith Barney does not provide tax or legal advice. Please consult your tax and/or legal adviser for such guidance.

Protection against risk
Long-term care insurance can be a valuable extension of your financial and retirement plans. With long term care coverage, you may be able to protect your assets, maintain your independence and preserve your standard of living. Long-term care insurance is medically underwritten. As such, your premiums may vary from any initial quotation you receive. You should not cancel your current coverage until your new coverage is approved and in force. A change in policy may require an examination.

Joe E. Froehle is a financial consultant with Smith Barney. Smith Barney is a division of Citigroup Global Market Inc. Member SIPC.
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