Long term insurance may be wise investment

Many Americans know that they, their spouse or perhaps their parents may well require long-term care at some point in their lives perhaps for life either at home or in a long-term care facility. And the cost of this care is not cheap. The average annual cost for a nursing home is roughly $45,000, and double that in some areas. The United Seniors Health Cooperative projects that average nursing home costs will double in the next decade.

Currently, most people rely on one of two ways to pay the bills: out of their own pockets or out of the government's pocket. Only a small percentage rely on what most experts agree is the best way to pay for long-term care: private insurance. According to a 1998 report by the American Council of Life Insurance, "about 6 percent of elderly people and a very small number of baby boomers have purchased long-term care insurance."

There are many reasons to consider a private policy.

Treat it like any other type of insurance. You wouldn't think of going without homeowner's, medical, auto or life insurance. So why go without insurance that protects you from the financial devastation of long-term health care?

't rely on the kids. Most people don't want to be so poor that they have to rely on their children, and caregiving is very expensive to the caregiver in terms of lost wages, future benefits, etc. Furthermore, baby boomers have fewer children to rely on for at-home care, and children tend to be more scattered than they once were.

Medicare doesn't pick up most of the tab. Many people believe that Medicare will pick up the tab for long-term health care. Medicare pays for limited nursing care (skilled care for 100 days or less) and limited home health care. It doesn't pay for long-term custodial care.

Avoid Medicaid. Medicaid, the federal/state health care program for the poor, will pay for a lifetime of long-term care, but to qualify for Medicaid, you must be impoverished. Rules vary from state to state, but generally you must have less than $2,000 in financial assets, not counting your home, and income is limited. Your spouse can keep more but is still severely limited in assets and income.

Also understand that Medicaid doesn't pay all the costs of the nursing home bill that you can't. You will still have to direct any of your income, such as Social Security and pension income, to the nursing home to supplement Medicaid.

Furthermore, Medicaid programs are required to recover expenses from the recipient's estate once the recipient dies. That means when your heirs sell your home, the profits may go to Medicaid to help repay the bill.

Don't have to transfer assets. Some Medicaid experts recommend strategies for people to give away assets to their heirs to deliberately impoverish themselves so they qualify for Medicaid. But most people don't want to transfer assets they will likely need for retirement, nor do they want to intentionally impoverish themselves.

Better alternatives to nursing homes. Most people want more options for care alternatives. Most long-term care policies pay for at-home care, as well as the increasingly popular assisted living facilities, most of which don't take Medicaid patients. A policy also will pay for adult day care, respite care, home modifications and other housing alternatives.

Maximize nursing home choice. Because Medicaid reimburses nursing homes at below the going rate, many nursing homes limit the number of beds available for Medicaid patients, and some don't have any. This may mean a wait, or you may be forced to move farther away from your loved ones just to get a bed.

Maximize quality of care. If you start out as a private-pay patient and later switch to Medicaid because you have exhausted your financial resources, the nursing home cannot kick you out. It also technically cannot reduce the quality of care. However, homes often transfer Medicaid patients to different rooms (say from a single to a double) or even to a different facility.

(The preceding article was produced by the Financial Planning Association and provided by William O. Woody, CLU, ChFC, CFP, of Stovall Woody Associates.)