Understanding the variety of long-term care insurance

The opportunity to have “the best”, whether it is the best car, best home, best education or best job has always been the American dream.

Knowing you have done the very best for yourself or your family produces that sigh of relief and peace of mind.

The goal of having “the best” however, does not necessarily apply to long-term care insurance (LTC).
What you need to strive for is comprehensive coverage that is affordable. It’s better to have basic coverage than no coverage at all, and you do not have to set your sights on that “Cadillac” policy in order to adequately and satisfactorily protect yourself and your family.

There are many ways to accomplish this.

The NYS Partnership offers four policies, two total asset protection plans — Total Asset 50 and Total Asset 100, and $2 for dollar plans: Dollar for Dollar 50 and Dollar for Dollar 100.

If you exhaust your total asset protection benefits and still need care, you can apply for NYS Medicaid without having to spend-down any of your assets. If you exhaust your dollar for dollar benefits and still need care, the assets protected will equal the amount of benefits paid by the policy. Any assets above the amount protected are subject to Medicaid spend-down limits.

Most people would want the total asset protection but the dollar for dollar policy may be perfectly adequate.

Let’s take the example of a couple who has $300,000 in assets. They purchase dollar for dollar 50 plans that gives them each one and one half years of nursing home coverage or three years home care or assisted living coverage. Their daily benefit is $300. The initial amount of assets protected will equal $164,400 ($300 x 548 days).

Not known to most people is that in addition to the assets protected by the policy, the couple can also keep the Medicaid spend-down amount that in 2010 equals up to $109,560. Therefore, the initial asset protection for this couple is $273,960, which is slightly below their total asset base of $300,000.
The partnership plan includes a 5 percent compound inflation factor that will increase the amount of assets protected each year. In 14 years, the daily benefit will approximately double to $600 or $328,800 in asset protection; in 20 years $796 or $435,810 in asset protection.

The difference in premium for a total asset protection policy vs. a dollar for dollar policy is approximately $1000 – $1500 less per year. This provides affordable coverage, and leaves more discretionary income while still protecting assets.

In order to know if the dollar for dollar partnership plan is an appropriate strategy, you should have a clear, fixed picture of your assets. A point to remember is to consider a higher daily benefit to have more asset protection.

Another cost effective approach to purchasing LTC insurance is to select one of the many new inflation options available in the non-partnership plans.
Some companies offer inflation protection based upon the Consumer Price Index. This may be a good alternative as opposed to purchasing a policy with 5 percent compound inflation. According to a 30-year study conducted by John Hancock ending in 2007, the CPI averaged 4.2 percent. A premium with CPI compound inflation can be approximately $1,000-plus less per year.

Still, an additional strategy is to purchase a policy with GPO (Guaranteed Purchase Option) inflation. The LTC insurance carrier will periodically offer you the option to raise your daily benefit. There is no insurability requirement but the new premium will be based upon your attained age. This approach will substantially lower your initial premium but be cautious when accepting the offers. You don’t want your premium to become too high for you to manage.
With the CPI Compound and GPO, consider purchasing a higher initial daily benefit to compensate for the daily benefit increasing at a slower rate than 5 percent compound or 5 percent simple.

If discretionary income for the premium is really a concern, purchase a comprehensive policy with the daily benefit geared towards home care and assisted living. With this approach, select a daily benefit that provides four to eight hours of home care, and covers the cost of assisted living. If you’re to enter a nursing home, the policy will help offset the cost of care but you will pay more out-of-pocket. The premium for this policy will also be substantially less.
Most individuals who don’t buy LTC insurance think it’s too expensive or they think they have to have “the best.”

Work with an LTC insurance specialist who understands the products and can design a policy that meets your needs. Having the coverage is “the best” thing you can do.

Susan Suben, a certified senior adviser, is president of Long Term Care Associates, Inc. and a consultant for Canandaigua National Bank & Trust Company. She can be reached at (800) 422-2655 or by e-mail at susansuben@31greenbush.com.