Long-term-care insurance: Myth vs. reality

Q: My father recently passed away after a lengthy stay in a nursing home, which depleted practically all of his assets. It was very expensive for my siblings and me to help support him. I’m considering long-term-care insurance to make sure that the same won’t happen to me someday. Do you think this is a wise move?

A: First, your father is very fortunate to have had you and your siblings in his life to take care of him. So many people, especially LGBT individuals and couples, may not have siblings, children or grandchildren to offer assistance. In the spirit of Valentine’s Day this month, we should all take a moment to consider how to best care for our loved ones — and how to best help them be able to care for us.

You may have spent years carefully working and planning so that you have sufficient income for a comfortable retirement. You may think that your retirement assets are protected — but have you ever considered what might happen if you or your partner required long-term care?

According to the Genworth Financial 2007 Cost of Care Survey, the national average annual cost of a private-room nursing-home stay is currently $74,806 a year. The average cost of in-home care assistance is nearly $33 per hour, or $68,600 per year for 40 hours a week of help. The cost of long-term care might deplete your entire retirement nest egg, all you’ve worked hard to obtain — even your home. It’s a risk you should not ignore. Without long-term-care planning, your financial plan may not be complete.

By paying an annual premium, you can transfer the risk to an insurance company and protect a substantial portion of your assets from long-term-care costs. Long-term-care insurance can also help you maintain your independence and give you the freedom to choose the type of care you want.

There are many myths about long-term-care insurance, the biggest one being that it’s expensive. The reality is that, typically, the average annual premium for partners, both age 62, can range from about $2,100 (with simple inflation) to $2,520 (with compound inflation). That’s less than a one-month stay in a nursing home.

Here are some other myths about long-term-care insurance:

Myth 1: I’m healthy now and take very good care of myself. Chances are I will never need long term care in my lifetime. Reality: People who reach age 65 will have a 40-percent chance of entering a nursing home. About 10 percent of the people who enter a nursing home will stay there five years or more.

Myth 2: My family and/or children plan to take me in, if necessary. Long-term-care insurance is just for nursing-home expenses. Reality: Long-term-care insurance is not just for nursing-home costs. It often covers services provided in the home, adult daycare and assisted-living facilities. You may even be covered for emergency-medical response systems, home modifications due to a medical condition or the temporary services of a medical professional to share at-home convalescent care.

Myth 3: I don’t need long-term-care insurance. My Medicare/Medicaid coverage will provide for long-term care. Reality: Medicare and Medicare supplements were designed to pay for catastrophes, hospitalization and physician healthcare. They do not, however, cover the cost of long-term custodial care. While Medicare does cover care in both a nursing home and a private residence, it is only for a limited time and is subject to restrictions.

To qualify for federal/state government Medicaid, recipients must meet the financial eligibility criteria, which may include spending down the majority of their assets. For this reason, Medicaid is typically a last resort for most people.

Who should consider long-term-care insurance?

From a financial standpoint, the best candidates for long-term-care insurance are individuals between ages 45-75 who have at least $200,000 in assets to protect. Those under age 45 are usually interested in purchasing long-term-care protection for their parents or for themselves, since the premium is usually lower at a younger age. Because long-term-care insurance is medically underwritten, all candidates should be in good health.

Additional tax benefits for long-term-care insurance

In an effort to encourage individuals to take more responsibility for their long-term healthcare needs, Congress passed legislation that provides tax incentives for buying long-term-care insurance.

Now, tax laws consider premiums for qualified long-term-care policies as a medical expense. If your non-reimbursed medical expenses, including your long-term-care premiums, exceed 7.5 percent of your adjusted gross income, you might be able to deduct all your premiums. Additionally, benefits paid for long-term-care services are not taxable as income.

I would strongly suggest you meet with a financial/insurance professional who has experience with long-term-care insurance who can further explain your options and make a recommendation based on your specific circumstances.

Jeremy Gussick is a financial advisor with Smith Barney in Center City, focusing on financial and investment planning for the LGBT community. Jeremy is also certified in Long Term Care. He actively serves on the boards of several local LGBT organizations, including the Delaware Valley Legacy Fund, the Greater Philadelphia Professional Network and the Independence Business Alliance, Greater Philadelphia’s LGBT Chamber of Commerce. OutMoney appears monthly. If you have a question for Jeremy, he can be contacted at (215) 238-5849 or [email protected].

Citigroup Inc. and its affiliates do not provide tax or legal advice. To the extent that this material or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by the law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

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