Research Insurance for any Long-Term Care or Annuity

People concerned with the soaring costs of long-term care may want to consider the availability of different types of insurance designed to address this issue. The variety of policies available provide coverage for people with a prolonged physical illness, disability or cognitive disorder (such as Alzheimer's disease) who are no longer able to function independently. Policies vary; coverage can include skilled care provided at a nursing home, help at home with daily activities such as bathing, eating, and dressing, or custodial care at an assisted living facility such as an adult day care center.

The first thing to realize is that providing long-term care services can be very expensive. A year's stay in a nursing home currently averages around $38,000. Skilled nursing care visits in your home three times a week will cost about $12,300 per year. The annual bill for personal care visits from a home health aide of the same frequency will total about $8,400.Long-term care insurance is meant to defray these costs so that an individual may avoid depleting lifelong savings. However, not everyone is a good candidate for buying long-term insurance. You should not purchase a long-term care policy if doing so would force you to forego more basic financial needs. On the other hand, you may not need long-term care insurance if your income from retirement plans and investments can cover the annual cost of nursing home care. Financial planners generally recommend you spend less than 5% of your annual income on LTC insurance premiums.

Although the cost of a long-term care policy is lower if purchased prior to age 60, the likelihood of needing LTC benefits then is also smaller. Premiums typically double from ages 60 to 70.

The coverage provided in long-term care policies are not standardized. Insurance companies offer multiple combinations of benefits and services. You should shop among companies in order to find the package which best fits your needs.

Some policies only pay benefits to cover a period of stay in a nursing home. Others cover nursing home and home care. Many also cover services in adult day care centers or other community facilities.

All policies contain provisions that determine when benefits are payable. Commonly referred to as "benefit triggers," these are usually described in a section of the policy entitled "Eligibility of Benefits." The most common trigger events are based on the inability to perform various Activities of Daily Living ("ADLs"), such as bathing, continence, dressing, eating, toileting, and transferring. Insurance companies typically agree to pay benefits when the insured is unable to perform a certain number of these ADLs – for example, two out of six.

There are a range of conditions which are not covered in long-term care policies. These include mental disorders, alcohol or drug addiction, and intentionally self-inflicted injuries. Most policies do, however, cover Alzheimer's disease under a provision described as "cognitive impairment" or "mental incapacity." Benefits are provided if the insured is unable to pass certain tests designed to assess his or her mental function.

Another feature of long-term care policies addresses the point at which benefits begin. Most policies specify an "elimination period," which can be 0, 20, 30, 60, 90, or 100 days after you enter a nursing home. Choosing a policy with a zero-day elimination period will cost the most. During the elimination period, the insured must cover the cost of long-term care services out of his own resources.

Long-term care policies offer a number of optional provisions which may be selected, such as protection from inflation. For example, a nursing home stay which costs $86 a day today may cost as much as $228 a day in 20 years if inflation were to average 5% a year. How your policy measures inflation can dramatically impact your future benefits. The rate of increase may be calculated as a simple percentage per year or it may be compounded. The difference is significant. If an $86 daily benefit is increased by a simple 5% per year, it will provide $172 in daily benefits in 20 years. But if the inflation provision is calculated on a compound basis the same 5% factor increases the daily coverage to $230. That's a one-third improvement in benefits!

When shopping for LTC insurance, take note of the types of facilities you must be in to receive coverage, as well as the limitations and exclusions of coverage. Most states require that you be provided with an outline of the coverage offered by the policy. Read it carefully.