By Steven Joshua Samuel (October 2011)

With the aging of the baby boomer generation, planning for long-term care illness has become of increasing concern. U.S. Department of Health and Human Services statistics show that 70 percent of people over 65 will require some long-term care services, primarily for one to five years of care. In 2010, the national average annual costs of long-term care were $ 40,428 for assisted living, $78,840 for private room nursing home and $1,135 per week for one eight-hour home care aid shift. Furthermore, long-term care costs in Massachusetts are higher than the national averages. Many questions arise when a family member needs long term care. Having a plan already in place may ease the emotional and financial stress on the rest of the family. We have provided answers to the most frequently asked questions when it comes to key planning issues. The good news is there are some new insurance alternatives that give families added flexibility in planning ahead.

What costs are covered by government programs?

Medicare covers medical care costs for illness or injury and provides very little for custodial care. Medicaid, the joint federal and state welfare program, pays for nursing home care but only after almost all of your own money has been spent. Although Medicaid pays for some home care services for people who have very little income or assets, finding and paying for caregivers with Medicaid funds is extremely difficult. Consequently, government programs do not effectively cover the really burdensome long-term care costs for middle class families, which have to be paid by either personal money or long-term care insurance.

What location for care do most people choose?

Most people prefer to remain in their own homes and most who start receiving care in their own homes are able to remain there. Coverage for long-term care in assisted living facilities, nursing homes, and in the insured person’s home are offered in most currently available long-term care insurance policies.

How much insurance coverage is enough?

For people who can afford insurance, the decision of how much of it is needed is usually made in consultation with an experienced professional. Key considerations include family and personal health history, as well as the local costs of care and affordability of annual premium. Seventy percent of recent buyers of long-term care coverage purchased between three and five years of benefits; 8.5 percent bought two years or less and 21.5 percent purchased six years or longer.

New choices in Long-Term Care insurance: Linked Life-Long Term Care Insurance Policies

Paying annual premiums to provide insurance for long-term care that may not be necessary is one reason some middle class consumers with considerable resources still have not acquired LTC insurance. New choices have become available to address this concern. One new choice is a policy that combines a death benefit and long-term care insurance, with all benefits income tax free; and, if long-term care is not needed, a refund of the premium is distributed. Here’s one example:

A retired woman, age 65, is married and in average (“standard” in insurance industry language) health and has not purchased long-term care insurance because of the annual premium. To address the possibility of long-term care needs, she has set aside $100,000 among her retirement investment holdings. In consultation with her financial advisor, she realizes that the amount set aside will cover little more than one year of care.

If instead she repositions the $100,000 into a “linked life-long term care policy,” offered by one of several financially solid insurance companies, she would have these benefits:

•$600,000 available to pay for long-term care costs (six times what she had without the policy);

•$200,000 death benefit if she does not have a long-term care need; and, $20,000 in death benefits even if she uses all the long-term care fund money described above;

•both the death benefit and long-term care moneys are income tax free;

•If she changes her mind about wanting the policy, the premium is refunded minus only loans she has taken and benefits which were paid to her.

Other versions of linked life-long term care policies are available with slightly different features. They are worth investigating, as always, in consultation with a qualified financial advisor.

Helpful consumer resources used in this article:

Department of Health & Human Services, National Clearinghouse for Long-Term Care Information, September, 2008, www.longtermcare.gov.

Life Plans Long Term Care Market Summary: Cost of Care Update 2010, www.LincolnFinancial.com.

American Association of Long Term Care Insurance, 2010 LTCI Sourcebook.

Samuel Financial, Inc. is located at 858 Washington St. Dedham, MA 02026 and can be reached at (781)461-6886. Securities and advisory services offered through Commonwealth Financial Network, member FINRA/SIPC, a registered investment adviser. Fixed Insurance products and services offered by Samuel Financial, Inc. is separate and unrelated to Commonwealth. www.samuelfinancial.com