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Long-term Thinking

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

As for when to buy it, estate-planning attorney Neil Schauer of Conn Kavanaugh Rosenthal Peisch & Ford says that he broaches the subject of LTC insurance with all clients over the age of 55, but believes that the most cost-efficient time to purchase such coverage is between 60 and 65. Bruce Schmidt, an estate-planning attorney at Howd, Lavieri & Finch, favors the sooner-rather-than-later strategy and suggests that buyers in their 40s and 50s take advantage of lower premiums, although he agrees that buying coverage at 65 is still not cost-prohibitive. Premiums vary greatly, but Schauer estimates that a 60-year-old with no preexisting health conditions can usually buy a policy with good coverage for $4,500 to $7,000 annually.

Aside from age, the key determinant of premiums is the payout cap, which can run from as little as $50 a day to as much as $500 or more. Michael B. FitzPatrick, managing partner of The LTC Partnership, an insurance broker, says that a good benchmark to use when calculating future LTC needs is the cost of nursing-home care. Daily costs at nursing homes range from $150 to $400 per day, and it is reasonable to assume that higher-quality care will cost at least $300 per day (in today’s dollars), or about $110,000 per year.

Buyers also need to consider the length of the benefit period, which can range from six months to a lifetime. Needless to say, opting for a lifetime payout costs the most. This entails a certain “crystal ball” bit of analysis, says FitzPatrick, who notes that the choice often depends on family medical history. On average, nursing-home patients live 2 to 3 years after entering a facility. On the other hand, someone with a family history or other risk factors pointing to Alzheimer’s or Parkinson’s disease may want to consider that a person with such a condition can live many more years. Also, consider that LTC often begins at home and that the average caregiving time is 5 years.

FitzPatrick also cautions against two common LTC insurance traps, one related to the number of days a policyholder must wait before the payout begins and the other having to do with what the payout will cover. The first, known as the elimination period, is essentially a deductible. Policyholders must handle their own LTC expenses between the time they qualify for LTC and the time their policy begins paying for it. You can opt for payouts to begin immediately, but you’ll pay more; opt for the six-month option (which may be viable if you anticipate having access to family help, or enough funds to pay your way) and you can drive your premium cost down. In some cases, you can decide whether the elimination period is calculated on a calendar-day or date-of-service basis. With the calendar-day option, the countdown to benefits begins as soon as the policyholder is deemed to need LTC; the date-of-service basis starts the clock when the client begins to incur expenses.

Other options policy buyers should review are the reimbursement payout and the broader indemnity option. The indemnity option allows policyholders to use the benefit payout for anything — lost wages, car payments, groceries, the hair salon, a big-screen TV, even lottery tickets. “There are no questions asked with the indemnity option,” says FitzPatrick. The reimbursement option covers only LTC expenses.

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