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Long-term Thinking

If you think contemplating your mortality is unpleasant, try shopping for long-term-care insurance.

Spend enough time sorting through the intricacies of long-term-care insurance and you may decide that John Maynard Keynes’s famous axiom, “In the long run, we are all dead,” is positively comforting. While almost no one would dispute that longevity is good, it comes at a price: as baby boomers in the United States turn 60 at a rate of 7,918 per day, some will encounter health problems that will require constant and expensive care, the sort of assistance that can seriously erode if not wipe out a person’s assets.

Whether handled by home-based services, assisted-living facilities, or nursing homes, long-term care is a booming industry — almost $200 billion was spent on LTC in 2004, according to the Government Accountability Office. LTC insurance, which offers a wide array of options to pay for a policyholder’s LTC needs, is suddenly a hot topic.

“We don’t want our children to be concerned with our long-term care,” says Edward Reed, a 76-year-old retired bank president whose LTC insurance premium is included in the fees he and his wife pay to live in a “lifecare” community. Reed says that building LTC insurance into his estate planning comes naturally to him because his father, who lived into his 90s, also had such coverage.

But Reed is unusual. LTC insurance “is a very new marketplace compared with other lines of insurance,” says David Simbro, vice president of LTC at Northwestern Mutual, which sells the coverage. Accordingly, he says, “policies are still evolving.” In other words, shop carefully.

In essence, LTC insurance works like many other types of coverage. Buyers pay premiums based on (in this case) age, health, marital status (married couples receive discounts of 15 percent or higher), and policy features. In exchange, the insurer pays benefits for qualified claims. A policyholder usually qualifies for a reimbursement when he or she can no longer perform at least two of the activities that constitute “daily living” (bathing, eating, dressing, transferring, and toileting/continence) or requires substantial supervision due to a cognitive impairment.

That’s where the simplicity ends. There is very little collective wisdom regarding how much insurance to carry, what benefit period to specify, which payout options to choose, or whether to buy the insurance at all. Making the best decisions may require some research, not only into the vagaries of the policy itself but also into the cost of LTC in your area and even into your family tree, as you attempt to divine your susceptibility to various medical conditions.

The tough choices begin when you try to decide whether and when to buy LTC insurance. Affluent individuals can self-fund their own long-term care, although estimates vary as to just how affluent you need to be. Some experts put the figure as high as $5 million in net worth. One key selling point for LTC insurance is its potential to protect your nest egg by funding long-term care, so even individuals who could handle such expenses may want to explore the coverage in that light.

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