Protecting your assets from future care costs

November 10, 1999
Web posted at: 11:29 AM EST (1629 GMT)

In this story: Paying for peace of mind Future plans RELATEDS

By Nancy E. Kelly

(WebMD) -- Insurance agent Stephen J. Spector often has the mixed blessing of witnessing the effectiveness of a product he's sold. He's most recently seen this with a long-term care insurance policy he sold in 1992 to his father-in-law, now 77, who was recently diagnosed with dementia and Parkinson's and requires at-home professional health care.

"He's complaining it's not enough. It's just a three-year policy," Spector, a Milwaukee agent with Northwest Mutual Life, says. But it's certainly better than the situation prior to using the benefit: Before activating the policy, which provides up to $250 per day in benefits, his father-in-law was paying $3,000 a month for home health care.

When the policy expires in 2002, Spector's father-in-law will be paying 100 percent of his care costs out-of-pocket. If it becomes necessary for him to enter a nursing home after the policy expires, that cost too will be paid for out-of-pocket. The federal government's Medicaid program does not contribute to long-term care costs until an estate is virtually depleted.

Paying for peace of mind

This scenario has certain baby boomers wondering if they should invest in long-term care insurance policies to prevent their own estates from dwindling down to nothing and forcing them to sacrifice legacies for their own children.

"Long-term care is not an investment," Spector cautions. "It's like disability insurance. It's a very emotional sale."

The policies, however, are not cheap. Spector, 41, said his widowed mother, 63, bought an unlimited long-term care policy last year that costs $2,400 a year in premiums. On the other hand, the policy will provide $66,000 a year in benefits for adult day care, home health care, nursing care or assisted living care, if she ever needs it.

"For her, it provides a peace of mind knowing she'll never have to spend down her estate," he said. "It doesn't have to be Alzheimer's. It could be a disabling accident that would require her need for this policy." Clients who have witnessed the impact of a devastating, long-term illness on their parents' estate prompt most of Spector's sales, he says.

"They have typically been touched by some debilitating illness in the family and saw the money go," he said. Basic nursing home care costs typically range between $45,000 and $65,000 a year.

Future plans

The American Association of Retired Persons (AARP) suggests potential long-term care policy buyers consider several factors to determine their likelihood of needing long-term care, including:

It is important to note that even with long-term care, policyholders could face impoverishment due to potential premium increases and expenses not covered by the policy. To help ensure that a long-term care policy is a sound financial decision, analysts suggest obtaining non-forfeiture protection to guard against losing benefits and inflation protection to prevent the policy from eroding in value over time. Analysts also suggest having $40,000-$60,000 in assets to pay for uncovered expenses.

Policies typically exclude care covered already by Medicare, worker's compensation or employer liability programs; care required as a result of alcoholism or drug abuse; care necessitated by non-organic psychological disorders such as anxiety or depression; or care needed as a result of self-inflicted injuries. Individuals with limited assets and income may be better off relying on Medicaid.

The average annual premium for what AARP considers "good" policies is around $2,600 per individual when purchased at age 65 and $8,500 when purchased at age 79 -- a sharp cost increase that can make planning appear to be a wise financial decision.

RELATEDS AT :

Insurance matters with Matt Heath
A guide to choosing a nursing home

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RELATED SITES:

Medicare
American Association of Retired Persons

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