Suddenly, I’m getting a lot of questions about long-term care (LTC) insurance. Mostly, they come from Baby Boomers who are wondering whether their parents should buy.
But older people, too, are trying to decide whether the risk is worth the annual premium cost.
They’re also concerned about the huge, potential expense of long-term care. They don’t want it to overcome their resources, leaving no legacy for the kids.
Congress created two tax breaks to lighten your load. Starting this year:
– Part of your LTC insurance premium may be deductible on your tax return, as a medical expense. (But ask your agent; some policies are tax-qualified and some aren’t.)
– If you’re receiving long-term care, its cost is tax-deductible, too (we’re awaiting details on exactly which expenses qualify).
Even so, full-time custodial care costs more than a tax deduction can repay. So how about it? Do you buy long-term care insurance or not?
If your income is modest–say, under $15,000–and your assets small, the answer is usually no. This coverage isn’t cheap and may use up money needed to maintain your standard of living. If you enter a nursing home and run through your own resources, the Medicaid program will pick up the bill. Medicaid also covers some home-care expenses.
In the $15,000 to $20,000 income range, the spouse outside the nursing home may be well protected, retaining most or all of the marital income.
The insurance decision is harder for middle-income people–namely, most of us. You’re balancing the risk of needing long-term care against the high price of coverage.
You’re asking whether you want to spend your savings on your own custodial-care expenses or leave the money to your kids. If you’re married, you’re asking whether your spouse will have enough to live on if you enter a nursing home.
Every state allots a certain amount of the marital income to the spouse at home, requiring that the rest be spent on nursing-home bills. You need insurance if the allotment is too small.
(To learn the size of your state’s allotment, call the Eldercare Locator, 800-677-1116, which will refer you to a local senior-aid group.)
Finally, you have to think about yourself. You can get into a better nursing home, if you can pay your own expenses for a year or so, before going on Medicaid.
When deciding whether to buy long-term care insurance, no rule of thumb works for everyone. But here are some guidelines from the United Seniors Health Cooperative (USHC), a non-profit consumer organization based in Washington, D.C. Consider it if:
– You have more than $75,000 in assets for every person in the household, not counting your house and car. You might want to leave part of that money to your heirs.
– Your annual income is $30,000 or more for every person in the household. At that level, policies start to become affordable.
– You’ll spend no more than 10 percent of your income on long-term care insurance. You might never need it, so you shouldn’t have to scrimp.
– You could still afford the policy if its cost went up by as much as 30 percent.
What is your chance of having to enter a nursing home? According to the National Association of Insurance Commissioners, one person in three who turned 65 in 1990 will stay a year. One person in 10 will stay five years or more, with the risk much higher for women than men.
If a husband and wife are in equally good health and can afford only one policy, it should generally be on the wife not the husband, says James Shambo, president of Lifetime Planning Concepts in Colorado Springs.
Women live longer, hence are more subject to the type of diseases that require long-term care.
Be sure that your policy has an annual inflation adjustment, so your benefits won’t fall way behind future nursing-home costs.
Also, emphasize nursing-home coverage over home-care insurance, USHC says. It’s hard to stay in your home unless you have relatives who will handle part of the duties themselves.
For a first-rate book on these and other issues, write for “Long-Term Care Planning: A Dollar & Sense Guide,” $15 from United Seniors Health Cooperative, 1331 H St. N.W., Washington D.C. 20005 or call 800-637-2604.
