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Recent Articles: Family Finances: Never too early to take close look at long-term care

By: Alan Lavine and Gail Liberman
Date of Article: June 30, 2003

Unfortunately, we don't have nationalized long-term health care. So unless you take precautions, you could be taken to the poor house if you wind up in a nursing home. John T. Whipple, an elder law attorney with Pashman Stein, Hackensack, N.J., suggests that you start thinking about this issue.

Persons with more than $100,000 in assets, but less than $1 million, he says, might consider asset protection techniques to help qualify for government benefits. These techniques, may involve such things as trusts, gifts or loans, based on what is permitted under state laws. Anyone with over $1 million in assets could be wise to consider whether long-term care insurance makes sense.

"That's a real rough rule of thumb," he stresses.

Either way, it's a good idea to take some action to prepare for this miserable fact of life while you're in good health.

How do you go about choosing long-term care insurance? That's a very controversial issue. The older you are and the more physical problems you have, the more expensive it becomes. Meanwhile, who knows? You could drop dead of a heart attack and never even need it!

Generally, experts advise that you start exploring the idea of long-term care insurance when you reach your sixties. But Whipple says there may be exceptions. For example, a self-employed 57-year-old with no group disability coverage might wish to consider it earlier to help overlap a disability policy, which is apt to be very expensive at that age.

There are at least five or six major carriers you can have confidence in, Whipple suggests. Those include: Prudential, CNA, John Hancock, GE Capital and Transamerica. It's critical that you know who you're buying it from. As with any insurance, long-term care benefits are only as good as the strength of the company behind them.

In considering a policy, Whipple advises that you look for these items:

  • A 90-day waiting period. You generally can select your waiting period or deductible before benefits kick in. A typical selection may include 30 days, 60 days, 90 days or 180 days. In many long-term stays, he says, Medicare picks up the first 100 days. If you select 180 days, you're uncovered for 80 days, and long-term care is far from cheap. On the other hand, with a 30-day period, you might be paying higher premiums for days that Medicare already covers.
  • A lifetime benefit. Seek a policy that pays you long-term care for life rather than a set period of, say, five years. An additional benefit worth taking if you can afford it is a premium waiver -- just in case you become incapacitated and are unable to continue paying your policy premiums.
    Consider a daily benefit of $150, which equals $4,500 a month. "That's going to get you a pretty nice facility -- if not the best, close to it," he says. To be certain, he suggests, price a few nursing homes to make sure you select the benefit that covers a facility you would prefer.
  • Cost-of-living adjustment. This important benefit raises your benefits based on inflation. However, these benefits can differ. Some policies, he notes, offer a 5 percent increase on a simple basis each year. Others offer 5 percent compounded, which can result in a much larger benefit increase. The compounded benefit, he says, is great if you can get it. Also, be certain that the cost-of-living adjustment occurs from the date you bought the policy rather than from the date of the claim.
  • Check home health-care provisions carefully. It's typically better, he says, to have a monthly benefit rather than a daily benefit. This way, if you don't need home health care daily, but you'd prefer better quality, higher-cost care on a less frequent basis, you can have it -- without tapping your personal assets.

Whichever method you choose, "I would say don't compromise your living standards severely," Whipple advises. "Look to see how it works in the whole budget."

But it is important to consider some action before it is too late. If you give your assets away to avoid having a nursing home take them, most states have a "look-back" period, in which they review, say, the past three years or so to determine what you've done with the money. If you've given away assets or money for less than fair market value, they're likely to make you pay for at least some of your care.

Better to avoid this scenario by seeking professional advice early on. Whipple says he has seen elder law attorneys charge anywhere from $2,500 to $5,000 or more. But, he says, a pretty decent deal is $2,000 to $2,500 for at least an analysis, recommendation and your basic documents, such as a will, and durable powers of attorney for finances and health care. On the other hand, he notes, he's aware of at least one attorney who charges a flat $5,000, which also covers any modifications that might be needed down the road.

If you do opt for an asset protection strategy, be sure to discuss with the attorney how you can ensure that your strategy remains valid amid frequently changing state laws. Find out how you will be notified if you must change your strategy, and whether such a change will require extra attorney fees.