MONEY MANAGEMENTFrom the Virginia Society of Certified Public Accountants - Presented by Dean Knepper, CPA, CFP®
LONG-TERM CARE INSURANCE: WHAT YOU NEED TO KNOW
(December 2007) -- The average cost of a private room in a nursing home is about $200 a day, or roughly $75,000 a year, according to a survey by the MetLife Mature Market Institute. And by 2020, 12 million older Americans will need long-term care, including nursing home stays, according to the U.S. Department of Health and Human Services.
How can families handle this expense? Health insurance pays the cost of the care you might need to recuperate from an illness or injury. A long-term care insurance policy, on the other hand, covers the many needs of those who are chronically ill. This may include nursing home stays as well as adult day care costs and assistance at home for those who can’t care for themselves, according to the Virginia Society of CPAs.
The best candidates
Long-term care policies are best for people who aren’t wealthy enough to be able to pay for a lengthy nursing home stay or in-home care out of pocket, but who do have enough assets to disqualify them from government assistance. Long-term care insurance will help prevent depleting savings — and wiping out children’s inheritance — for those who are disabled or face a debilitating lengthy illness. Having a long-term care policy may also provide greater control over the care that is received.
Qualifying to collect
To receive payments on a policy, it’s not simply sufficient for a loved one to decide that the policyholder is no longer able to care for themselves. Instead, the person covered must be unable to perform at least two of the regular activities of daily living set forth in many policies. These activities typically include bathing, dressing, eating and getting around the house alone, among others.
Be aware of the options
There is not just one type of long-term care policy. There are many choices within each policy, including what’s covered under what circumstances, and each one will affect the cost of premiums. For example, some policies reimburse for a variety of types of care, while others might cover only nursing homes, assisted living arrangements or in-home care. The policy premium will vary, too, based on what maximum daily or monthly benefit coverage amount you want to receive. Another variable is the policy benefit period, or how long the insurer will pay for your care. You’ll have to consider, as well, the elimination period which is the amount of time you’ll have to wait until your payments begin.
Your age will also affect premium cost. For example, payments will likely be lower for those in their 50s, than for those in their 60s, but they are likely to rise as you get older.
Don’t overlook retirement savings
While long-term care policies can provide an excellent safety net, CPAs point out that they are just one of many issues to consider in retirement. It’s also important to remember to adequately fund your 401(k) or other retirement account. You may never need to spend money on long-term care, but you will almost certainly quit working someday and want some sort of financial cushion during retirement. So, in general, CPAs recommend that you accumulate sufficient retirement savings before you start setting aside dollars for long-term care.
Seek advice from your CPA
Planning for future needs is clearly a complicated process, but help is available.
Your CPA can offer guidance on how to shop around for the right long-term care
policy and how to navigate the many choices associated with retirement and aging.
The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at www.vscpa.com.
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