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Understanding Long Term Care

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April 2005
Understanding Long Term Care

By: Pavittar Safir, CFP

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Long term care (LTC) refers to the range and type of assistance required by people who are unable to function independently over a relatively long period of time. Physical or mental limitations can render a person incapable to perform essential activities of daily living (ADLs) such as eating, bathing, dressing, using the toilet, getting into or out of bed and problems associated with cognitive impairment like Alzheimer's disease. Long term care does not include hospital care. The generally accepted definition of "long term" is 90 days or more.

Americans now live longer after retirement as the life expectancy has increased substantially. Currently there are about 35 million people over 65 or 12 percent of the population. This number is expected to be 70 million by 2030 or one-fifth of the population. An average American can expect to live nearly 75 years or more.

Over half of those over 65 will enter a nursing facility some time in their lives. Average stay in a nursing home is about three years but some patients, especially women, stay longer. Annual cost currently ranges from $47,000 to $88,000 per year depending upon location. This cost is rising rapidly. It is estimated that 50% of couples and 70% of singles are impoverished within one year of nursing home stay. Many more are being cared for at home by family members and relatives. The economic cost of this care is enormous as the caregivers give up careers and frequently stay away from work.

Health Care vs. Long Term Care

Health care policies cover treatment for acute conditions where a high level of medical care usually restores the patient to health. Acute care is usually needed for a short period of time. Chronic conditions are long lasting and may require some medical treatment and monitoring; generally, however, it involves non-medical care such as assistance with activities of daily living (ADLs). This care can be scheduled or on-demand. For example, bathing and dressing can be scheduled but toileting and transferring has to be on demand. This is long term care.

Who should buy LTC Insurance?

Wealthy individuals may not need it as they can pay for it as necessary. Medicaid may pay for those who have very modest means and have not transferred assets to others within three to five years. A Long Term Care policy may make sense for those who have assets but do not want to deplete them. Moreover it may be cheaper in the long run to buy insurance than to assume the risk. Rest of the family still has needs and may like to leave some assets for the heirs or a favorite charity. Often a life insurance policy can be endorsed to provide for long term care if needed.

Long Term Care Insurance

An LTC policy can cover nursing home care, home care or both. A comprehensive policy covers in home and nursing home care where daily benefits are spelled out in dollars... The waiting period can be 30 days or more. The benefit period can be three years to life. Make sure that lifetime benefits mean what it says; unlimited with no dollar amount. One must, however, seriously consider the following endorsements:

? Inflation protection,

? Guaranteed insurability option in case the insured wants to increase the amount of daily benefit,

? Guaranteed renewable,

? Non-forfeiture or contingent non-forfeiture clause in case the insured stops paying premium, and

? Unintentional lapse of policy.

LTC policies can be tax qualified and non-tax qualified. The difference is in the way the benefits are triggered and the tax treatment of premium. Most policies issued today are tax qualified where the premium may be deductible.

Long term care policy is a serious option after one has provided for the more immediate concerns like disability, loss of income due to premature death etc. Early purchase of an LTC policy from a financially strong and reputable company may mean lower premium and the ability to have the policy paid off before retirement. Please call us for a no-obligation consultation if you need more information or have questions.


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