As you begin to plan for your retirement, you may be shocked at the prices of nursing homes and other supportive housing options. And you may be even more concerned by the fact that government health-care options (such as Medicaid and Medicare) rarely cover the full costs of such care. If so, you may want to look into long-term care insurance now
. Long-term care insurance helps pay for extended periods (usually two or more years) of nursing home care, assisted living, inhome care, adult day care, and respite care. It is still a relatively new and evolving insurance product, so the typical features continue to change.Is it right for you?
Long-term care insurance is best for those with income and assets to protect. One rule of thumb is to consider long-term-care insurance if you are at least fifty-five years old and your assets exceed $200,000. Of course, the decision is never quite that simple, since you also need to take into account your overall debt load, retirement funding, payment for your children’s education, and so on.
What should you look for in a policy?
Examine specific provisions carefully before purchasing a policy, since the conditions and limitations on coverage can be extensive and complex. The best policies cover all levels of nursing home care plus care at assisted-living facilities. Assisted-living facilities provide a level of support that is less than that of a nursing home, and may be a better alternative for many people who can no longer live at home.
Better long-term care policies will also cover home care, which is broadly defined to include not only skilled home health services, but also nonmedical support services such as homemaker services, home health-aide services, and personal-care services. Newer policies even offer coverage options such as adult day care or respite care for your family.
What are the tax implications of long-term care policies?
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) clarified the tax treatment of both premiums and benefits so as to make it the same as for major medical coverage. Under HIPAA, benefits from a federally qualified long-term care policy—that is, a policy that meets minimum federal standards—are generally not taxable. For taxpayers who itemize their deductions, premiums for long-term care, as well as consumers’ out-of-pocket costs for long-term care, can be applied toward meeting the 7.5 percent floor for medical expense eductions (that is, medical expenses are deductible only to the extent that they exceed 7.5 percent of your income). The IRS sets limits based upon one’s age, for the total amount of premiums paid for long-term care insurance that can be applied to the 7.5 percent floor, so check with a tax adviser before taking this deduction.
How much do policies cost?
The cost of long-term care insurance depends on your age at the time of purchase, the extent of coverage, and your health history. Age is clearly the single greatest factor. The policy premium can easily run to $1,500 a year for a fifty-five-year-old, $3,000 for a sixty-five-year-old, and $6,000 or more if purchased at age seventy-five. Once you buy a policy, your individual premium is generally locked in. However, your premiums could change if the company is attempting to raise premiums across the board for all policyholders or if the company is purchased by another company that is attempting to do so.
What about preexisting conditions?
A medical screening is required for most long-term care insurance policies. Many insurance companies will exclude you for certain preexisting health conditions, require higher premiums, or may have a waiting period before benefits will kick in. Because policies can differ on these issues, review any preexisting clauses carefully and make sure you fully understand them. If you have any questions, make sure they are answered before you sign a contract.
How do you evaluate a long-term care policy?
In evaluating long-term care policies, compare several policies side by side. Your state’s insurance department should have names of companies offering long-term care insurance. Most states have begun to set minimum standards and consumer protection guidelines for these policies. Guides for evaluating policies may also be available from your state’s insurance department or your state or local office on aging.
Long-term care insurance policies are still a relatively new insurance product. As such, there are many types and variations. If you have any questions about your policy, make sure you ask a company representative for clarification. If you are still unclear, do not hesitate to talk to your attorney about such concerns, particularly if they relate to your policy contract.