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Insurance For The Twilight Years


Personal Business: PLANNING

INSURANCE FOR THE TWILIGHT YEARS

Many elderly people would prefer to live--and die--at home than in a retirement community. Still, 60% of people over age 75 need some form of long-term care, and nearly half of those stay in nursing homes for about three years. Costing an average of $30,000 a year, long-term care can quickly eat up retirement income and start eroding your hard-earned assets.

With forethought, you can manage those costs before they leave you penniless. Medicaid will pay the bills only if you have less than $5,000 to your name. Medicare coverage is restricted to 150 days of skilled nursing care, and only after hospitalization for illness. So insurance companies offer long-term-care policies. Besides nursing home bills, they usually cover the costs of home care, from skilled nursing to nonprofessional help with daily activities such as bathing, dressing, and eating.

PAY AS YOU GO? These policies cost a pretty penny, but they make sense for people who have estates worth less than $2 million, incomes of $100,000 to $150,000 a year, and who want to leave a little something to their children. If you're richer than that, you're better off paying as you go, says Ralph Solomon of financial consultants Ralph Solomon & Associates in Boca Raton, Fla.

Premiums depend on your age at application and options selected. A policy for three years of care from John Hancock, for example, taken out at age 65 and covering $100 a day is $2,227 a year. The same policy bought at age 75: $5,376. Both have 20-day elimination, or deductible, periods, meaning you pay the cost of your first 20 days in residence.

Both also protect against inflation increases. Higher per diem coverage will boost the premiums; longer elimination periods will lower them. Initially, policies that covered preexisting conditions and Alzheimer's disease were hard to find. But insurers are increasingly including such coverage.

Lifetime policies are costlier, and the economics don't work in your favor unless you need care for a chronic illness. Under a three-year policy with a home-care rider, for instance, a person can go in and out of a nursing home as many times as necessary during the three years and be covered for skilled care at home between stays--the most usual pattern among the ailing elderly. And premiums don't rise if you simply renew a short-term policy. "People are pretty safe assuming their premiums will stay about the same," says Solomon. The danger is that if, say, cancer strikes, an insurer isn't obligated to renew after three years.

ASSET SHIFT. Personal financial planners can help you find alternatives for meeting the costs of long-term care. Tax attorney Irwin Scherago recommends transferring assets to a child or other trustee so you can meet the net-worth limits for medicaid. Don't make this move without professional advice, however, as it has complex tax and estate consequences.

Another option is taking early payout of death benefits from your life insurance policy for long-term care. Or you can make a lump-sum deposit with a nursing home to be used for future care costs. You can also use annuity income, and some fixed annuities allow access to principal for medical costs.

Whatever your choice, don't wait until the last minute to make it. Careful planning is the best insurance of all.

WHAT TO LOOK FOR IN A LONG-TERM-CARE POLICY

-- Nursing-home and home-care benefits

-- Coverage for all care levels: Skilled, intermediate, and custodial

-- At least three years' coverage

-- Brief deductible period before policy kicks in

-- No hospitalization requirement

-- Coverage for preexisting conditions and Alzheimer's disease

-- Insurer may not cancel before end of term

-- Inflation protection

DATA: RALPH SOLOMON & ASSOCIATES, BWEDITED BY AMY DUNKIN Joan Warner


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