Long Term Health Care

[DrDan]

anybody including this in their portfolios?

If so, what did you look for in a plan? Any particular payouts you were seeking - and how did you determine those?

Anything to avoid?

[scruffy]

1. LTC Insurance can be very valuable

I recommend it to most of my clients.

The average cost to be in a nursing home these days is about $200 per day, so you can use that as s good starting point. Then you can choose how long you need to be in the nursing home before benefits are payable . .. the longer the waiting period, the less your premium will be, although the savings isn't as much as you would hope. If you go for a longer waiting period - say 90-180 days - that means you need to have enough cash or other assets to pay the cost of the nursing home before the insurance begins to pay.

You also need to include an inflation benefit, which will increase the daily benefit by some amount. The usual increase is 5% compound interest, which seems to be the amount that nursing home costs go up each year. You also select a benefit period, which is how long the insurance company will pay for your care. Benefit periods typically range from 2 years to lifetime. Personally, I think a 2 or 3 year benefit period is too short; many believe a lifetime benefit period is too long. The average stay in a nursing home tends to be 2-3 years, which might indicate that you would be ok with a relatively short benefit period . . but remember that in order to obtain an "average" length of stay, some people need to stay longer than 2-3 years and some need to stay for less than that time. Also - that average length of stay statistic doesn't include being at home having home health care before going into the nursing home. So if I had to choose, I would go for a benefit period of 6 - 10 years. (My family also has a lot of longevity!)

Important things to look for: You want a policy that allows your own physician to make the decision as to whether you need to be in a nursing home - you DON'T want that decision to be made by the insurance company's own physicians - that is a huge conflict of interest. You also want a policy that covers home health care at the same rate as nursing home care. Some less expensive plans may pay $200 a day to be in a nursing home, but only 50-75% of that amount for home health care. Also, you want to have an inflation benefit that increases the daily benefit on an annual basis - what you don't want is just the option to purchase additional coverage at a later date. While policies with just the option to purchase additional coverage are initially less expensive than policies that have an annually increasing benefit, over time - assuming you do purchase the additional coverage - the policies that just give you the option to purchase more coverage end up costing much more than the ones with the annually increasing benefit.

All of this assumes that this type of insurance is appropriate for you. If you don't have much in the way of investments or savings - at least not enough to handle the initial waiting period before the benefits are payable, purchasing the coverage probably won't do you much good. Or if your retirement income is high and/or you have a high level of assets, you may be able to pay the nursing home expenses out of your investments or income. A trained professional can help make the determination as to whether you would benefit from this type of coverage.

[DrDan]

2. scruffy - thanks for a very comprehensive reply!

you have given me some very valuable guidance

[question everything]

3. Purchased one last year

and as I am working on our tax return I realized that I can deduct the cost - as long as we itemize our deductions. Well, the sum was large enough to have our medical costs to exceed the 7.5% of our gross income (I also pay for my own health insurance while my spouse is covered by the employer).

[DrDan]

4. I did not realize that

thanks

[question everything]

5. Correction, though

depending on your age, you cannot deduct all of that - I could not understand why TurboTax was "cheating " me of about $2K, so I went to Pub. 502:

Age 40 or under - $280

Age 41 to 50 - $530

Age 51 to 60 - $1060

Age 61 to 70 - $2830

Age 71 and over - $3530

[DrDan]

6. thanks for the clarification

It still is good news that some tax break will be recognized