The Biggest Mistake To Avoid

When Buying Long Term Care Insurance

Long-term care is not an easy subject to talk about. No one wants to think that they, or someone they love, might need long-term care one day. Being in denial about this topic doesn’t mean you won’t need long-term care. Of course, none of us can ever know what tomorrow will hold. We can only be sure that we will die quickly, or we won’t.

Long-term care insurance isn’t just for the elderly or something that only older people should protect themselves with. Indeed, it is estimated that over 40% of those needing long-term care are under the age of 65.¹ Obviously, as you get older the chances of needing long-term care are much greater.

Unfortunately, the longer you wait to purchase long-term care insurance, the less likely you will be able to qualify for the coverage. Long-term care insurance is only made available to those who can qualify medically. Not only is it possible that you may not qualify due to your health, the longer you wait the more expensive this insurance will be.

Each year you wait to purchase long-term care insurance, the premiums can jump as much as 10% to 15%. In addition, some companies have asked some of their existing policyholders to pay increases of 10% to 40% at a time, and in certain cases, three years in a row.² Be cautious about purchasing a long-term care policy from a company that has ever increased their rates.

So, the absolute biggest mistake you can make when buying long-term care insurance is waiting to purchase this important coverage.

I. When Is Long Term Care Needed

Long-term care refers to care and services provided to an individual on a regular basis for a period of time. It is required when you need assistance with your activities of daily living or when you have some type of cognitive impairment.

II. Why Do People Buy Long Term Care Insurance

Most people don’t want their family to have to manage the emotional and financial burden that long-term care brings with it. It’s important to consider the following questions before this situation occurs.

- Who will provide you with your long-term care?

- How will you pay for the cost of your long-term care?

- How will your spouse or family be affected when you need long-term care?

Although there are a variety of reasons to purchase long-term care insurance, my customer surveys indicate that the four most common reasons that people purchase long-term care are:

· They don’t want to be a burden on their spouse, children or other family members.

· They want access to quality care in their own home.

· They don’t want their hard-earned life savings and investments to be used to pay for their long-term care.

· They want peace of mind as to their future long-term care needs.

It’s important to understand when long-term care is needed and you don’t have long-term care insurance, the money to pay for your care may come from your savings or investments. Most people’s savings could not withstand 3 or 4 years of long term-care costs. Without long-term care insurance, assets may have to be sold or savings may have to be used to pay for your care.

III. What Is My Risk of Needing Long Term Care

Quite frankly, your risk of needing long-term care may be the biggest risk you face to your financial future. Consider the following facts:

· It is estimated that 70% of people will require care in their home at some point in their life.³

· There’s a 43% chance that a person over age 65 will enter a nursing home with an average stay of approximately three years.⁴

With just one year in a nursing home now averaging more than $40,000 per year in South Arkansas/North Louisiana and Home Healthcare could be well over $50,000, it’s critical to take action now and purchase long-term care insurance.

Since nursing home stays are approximately three years, without long-term care insurance you may face a cost today of a minimum of $120,000 that would have to come out of your hard-earned savings. With the cost of nursing home care rising approximately 5% per year, your cost in 10 years for three years of long-term care could be close to $245,000 and in 20 years close to $395,000 for three years of care.⁵

That’s a lot of money to have to take out of your hard-earned savings and investments.

You have protected your home, your car and your health with insurance and I know you hope that you will never need to collect on any of this insurance.

With long-term care being a greater risk to you than the other risks that you have already protected, it’s time now to purchase long-term care insurance if you can qualify.

IV. Long Term Care Insurance Isn’t Just Nursing Home Insurance

Some people believe that long-term care is the same as nursing home care. Actually, long-term care insurance is designed to help keep you out of a nursing home and in a more comfortable place like your home or in an assisted living facility. As opposed to being in a nursing home, long-term care in your own home or in an assisted living facility can provide you a higher quality of care and at the same time be less expensive. In the past, many people relied on family members to provide their care. When you get sick and need help, who can you plan on to provide your long-term care for you?

Today many families are two income families with children and can’t afford either the time or the expense to take care of their parents. Sometimes children often don’t live near their parents and can’t afford the time to offer support.

Indeed, even if family members help you with your care, many come to resent their having to put their own lives on hold just to help provide all the care you will need.

Oftentimes when people are asked who will provide them their long-term care their response is “My kids said they will take care of me.” The real question is, “What do you want to happen? Do you really want your family members bathing and dressing you and being in your home, or worse yet, being in their home both day and night.

This is one of the primary reasons that younger people are also buying long-term care not only for themselves but also for their parents. It’s much more practical and less expensive to pay the annual premium for long-term care insurance than have to bear the burden of providing the care themselves. Having the peace of mind provided by having long-term care insurance is well worth the annual premium cost.

V. Won’t Medicare Pay For Long Term Care

All too often families are shocked to discover that Medicare or Medicare Supplemental insurance doesn’t pay for long stays at home. Medicare or Supplemental insurance won’t pay for long-term care in an assisted living facility or for any cost in a nursing home. Even the health insurance you may have either on your own or through your employer will rarely pay for long-term care.⁶

Medicare covers only brief, acute illnesses in a skilled nursing home or rehabilitation. FOR 2005, MEDICARE PAYS 100% FOR THE FIRST 20 DAYS, THEN YOU PAY $114.00 FOR DAYS 21 THROUGH 100, ON DAY 101 THROUGH 365 YOU PAY 100% OF LONG TERM CARE COSTS. AT HOME RECOVERY, $40 PER VISIT *(4 HRS. MAX), 7 VISITS PER WEEK, ABOUT $1,600 TOTAL PER YR. Medicare today does not cover the expenses that it did some years ago and it can be assumed that Medicare in the future will not provide nearly the benefits that it does today.

MEDICAID: NO MORE THAN $1,536/PER MONTH FOR INCOME, $2,000 ($3,000 for a Couple) LIMIT FOR RESOUCES. (RESOURCES INCLUDE; PROPERTY, HOME, NON-HOME, HEIR PROPERTY, BANK ACCOUNTS, STOCKS, BONDS, CD’S, BURIAL FUNDS, INSURANCE POLICIES, VEHICLES, BOATS, TRUCKS, CARS, CAMPERS, LIVESTOCK, CEMETARY PLOTS, TRUSTS, CASH, ETC. (TRANSFER OF ASSETS MUST BE DOCUMENTED FOR AT LEAST 36 MONTHS PRIOR TO APPLICATION FOR MEDICAID ASSISTANCE OR A 5 YEAR LOOKBACK FOR TRANSFERS MADE TO AN IRREVOCABLE TRUST OR ANNUITY PRIOR TO APPLICATION FOR MEDICAID ASSISTANCE.) Additionally, the Health Insurance Portability and Accountability Act of 1996 makes it a federal crime to “knowingly and willfully” transfer financial assets in order to qualify for Medicaid coverage for nursing home and other long-term care services.⁷

With approximately 35 million people over the age of 65 in the U.S. today and with the baby-boomers turning 65 in the future, it is estimated that there will be over 70 million people over the age of 65 within 20 years. With the demand for Medicare being forecast as the highest ever in history it’s easy to see how Medicare will probably not be able to provide the same benefits in the future as it does today.

The federal government has recognized this crisis and is now providing long-term care insurance policies to retired federal employees and military personnel. There’s only catch to this --the federal government isn’t paying for the premiums on this insurance, it’s up to the private individuals to pay for their own policies.

Our politicians are finally starting to deal with the fact that the federal government won’t be able to support the future needs of our growing, older population. This is a strong message from the federal government, which says that each individual is responsible for providing for his or her own long-term care insurance.

VI. But My Financial Advisor, Attorney, CPA Told Me Not To Buy Long Term Care insurance.

Many people, sometimes including their advisors, believe that if they have accumulated enough in savings that they will be able to afford to pay for their long-term care needs. Actually this can be true. The real question is “What do you want to use your retirement savings for?”

Ask yourself, have you saved or are you saving to spend a major portion of your savings on your long-term care needs? Why do you have insurance on your home, your car and your health?

Would a competent advisor tell you not to purchase these kinds of insurance policies because if your home burns down you have enough savings to build another home? If you wreck your car or need to go to the hospital, does your advisor say don’t worry about it because you have enough in savings to cover the costs?

Long-term care insurance works just like the other insurance you have purchased and goes a step beyond. Not only will long-term care insurance help to protect your savings

and financial security, it provides you the care and services that you require in your home, in an assisted living facility or a nursing home.

Unlike home car or health insurance, where you can usually purchase insurance after a catastrophic event, once your health changes, you most likely won’t be able to purchase long-term care insurance for your future protection.

So, again, the biggest mistake you can make when buying long-term care insurance is waiting to buy until at a later time.

VII. What Questions Should I Ask When Buying Long Term Care Insurance.

Just like asking questions about any other product you purchase you should ask the following questions about long-term care insurance. It’s important to be an informed consumer before you purchase.

1. Does the company have a financial rating from A.M. Best of A+ (Superior) or better?

Why: If a company has a rating lower than A+, there is a chance that there might be a price increase in the future.

2. Has the company ever had a rate increase on existing long-term care policyholders?

Why: If there have been any price increases in the past, it is more likely there will be price increases in the future.

3. Has the company been in the long-term care business for more than 20 years?

Why: If a company has been offering long-term care insurance less than 20 years they may not have priced the policy correctly and they may increase prices in the future.

4. Does the policy provide a Care Coordinator for home care needs that the policyholder does not have to pay for?

Why: There should be no “hidden charges” to you for future benefits.

5. Do I have unlimited access to the Care Coordinator or am I limited to a specific number of visits by the Care Coordinator?

Why: When needing care in your home you may need to call upon the services of the Care Coordinator many times and you should not be limited in having access to this service.

6. Can the actual care providers be independent or do I have to use care providers as selected by the company?

Why: You should be able to have control over who comes into your home and to select who your care providers are and not be forced to use the care

providers selected by the company.

7. Does the policy start paying for home care from the first day I need care it or will I have to wait several days or months to get any help?

Why: Most companies have an elimination period of benefits of 30 days or more for services you require in your home. The best long-term care policies do not have any elimination period of benefits for home care.

8. How long will I need coverage, or how many years of protection should I get?

Why: No one knows or can guess the exact length of time that they may need LTCi coverage, either in terms of dollars or days, months or years. However, in 2005 A national study revealed important information regarding the claims usage of those who purchased long-term care insurance protection.

Too costly is the number one reason many people give for not buying long-term care insurance protection. How much you pay for coverage depends to a large degree on how much protection you get. An individual can reduce the yearly cost of protection by 35-to-40 percent by purchasing a three-year benefit versus an unlimited benefit (also referred to as lifetime). But, is that enough protection?

The comprehensive survey conducted by Milliman, the leading independent national long-term care insurance actuarial and product development firm, examined claims data from some 1.6-million in-force policies. Only 14.4 percent of closed long-term care insurance claims lasted longer than 24 months (some 33.2 percent of open claims last longer than 24 months). The study revealed that only 5.6 percent of closed claims lasted longer than 36 months (16.2% for open claims). This is the most comprehensive look at recent long-term care insurance claims data. The goal was to better understand what percentage of long-term care insurance claimants with shorter duration policies actually use-up or exhaust their policy benefits. The study concluded that for a three-year benefit period, only eight in 100 claimants exhausted their policy.

While there are indeed catastrophic situations where individuals need long-term care for many years, according to the study’s findings, for the vast majority of individuals with long-term care insurance protection, a shorter-duration policy could be adequate. This is an especially important message for those individuals who find unlimited protection is too expensive. Indeed for many Americans, some protection will prove to be better than none. And, certainly more affordable.”

VIII. What Benefits Should My Policy Include

There are four important benefits that should be included when selecting your long-term care insurance.

Benefit Period – If affordable, you should have a policy that covers you for a minimum of 4 years. The average length of stay in a nursing home is approximately 3 years and since you may also need care in your own home, coverage for 4 years will most likely provide you the benefits that you will need.

If you are under age 60, it is recommended that you purchase an unlimited or lifetime policy where you will have access to both money and services the entire time that you need long-term care.

Daily Benefit - This is the amount the insurance company will pay you per day. The amount you may need varies from state to state and as your long-term care specialist I can advise you on what the daily costs are in your particular location. Normally it is recommended that you purchase a minimum of $100 per day coverage.

Inflation Protection – This benefit allows your coverage to increase over time to hopefully keep pace with the actual increase of costs of long-term care. If you are under age 70, it is recommended that you select compound inflation protection with your coverage. If you are over age 70, you should consider simple inflation coverage instead of compound inflation coverage.

In addition, and this is very important, make sure that the inflation protection is calculated on the original face amount of the policy and not on the amount remaining in the policy after you have used some of the benefits.

Benefit Payments – Although there are some policies that provide benefit payments only in a nursing home, you should select coverage where benefits are paid either in

your home, in an assisted living facility or in a nursing home. These benefits should also be available to you even if you stay in your children’s home.

It’s difficult to determine where you may actually need your long-term coverage in the future and therefore the prudent decision would be not to limit where you may receive your long-term care benefits.

IX. What Should My Annual Premium Be

All policy premiums are based upon your age. Therefore, it is important to purchase your long-term care insurance as soon as possible.

The source of your annual premium payments can come from either your current income, if you are still working, or from the interest you receive from your savings and investments if you are retired. In either case, always ask for 2 plan options to be presented to you from the same company.

For those who are paying their annual premium from their savings and investments, the total annual policy premium should be no greater than approximately 40% of the interest that you receive from your investments or savings on an annual basis.

You should be able to pay your annual premiums without having to affect your current lifestyle or depleting the principle of your assets.

X. Are The Premiums Tax Deductible?

Premiums for a tax-qualified long-term care insurance policy are deductible as personal medical expenses for those taxpayers who itemize their deductions.

Deductions can be taken for individuals, their spouses and tax dependents (such as parents) and are subject to the same tax rules as traditional medical expenses. The deductible amount is subject to dollar limits based on the individual taxpayer’s attained age before the close of the tax year. These limits are annually indexed for inflation. Contact your tax advisor for the current limit of tax deduction.

Payments for a tax-qualified long-term care insurance policy purchased by a Self Employed Individual or Sole Proprietor are deductible the same as medical insurance premiums with the same limits as those for individual taxpayers. The “Applicable Percentage” of premium that is deductible as self-employed health insurance will increase according to the following schedule.

Tax Year 2002 – 70%

Tax Year 2003 and thereafter – 100%

For S-Corporations, Limited Liability Corporations and Partnerships, premium payments for a tax-qualified long-term care insurance policy purchased for a partner or owner or 2% + shareholder are subject to the same rules as applicable to self-employed individuals and are deductible as a business expense.

Premium payments for policies purchased for a non-partner or non-owner or less than 2% shareholder-employee are fully deductible as a reasonable and necessary business expense so long as the entity does not retain any interest in the policy. The same is true for their spouse or tax dependents.

For C-Corporations, premium payments for a tax-qualified long-term care insurance policy are fully (100%) deductible as a reasonable and necessary business expense, similar to traditional health and accident insurance premiums (IRS Sec. 162)

Tax-deductible long-term care insurance can be purchased for employees and owners. Company paid policies can cover retirees and spouses even though the company does not employ them. All employer-paid premiums are not included in the employee’s gross income (not reported). The same applies for the spouse and tax dependents.

Policies purchased for a stockholder who is not an employee may not be deducted and the premiums paid may represent dividend income to the shareholder.⁸

For C-Corporations it may be possible to discriminate who the C-Corporation provides long-term care insurance to. It may be possible to create a bona fide class of select corporate employees that are eligible for this corporate-paid benefit. Premium payments generally will be fully tax deductible.

Federal tax codes allow individuals and businesses to deduct tax-qualified long-term care insurance premiums. Recognizing that government can’t pay the bill for care, tax incentives are offered to encourage Americans to take personal responsibility for their long-term care needs.

XII. Summary

As a Long-Term Care Specialist, I am providing you this information in order that you might have an overview of the importance of purchasing long-term care insurance.

If you are like most people, long-term care insurance is the only major catastrophe for which you may have no insurance plan. It is likely that long-term care insurance is the last major type of insurance that you will ever have to purchase.

It is important to have a policy that has been designed specifically for your individual needs and a policy that is affordable for your particular financial situation. In order to fully evaluate your needs and to determine the exact policy that meets your requirements, it is necessary to meet with you and determine the proper coverage and premium cost.

Our emotions sometimes make us feel that we will never need long-term care insurance however from the statistics that I have provided you, it is obvious that the biggest risk you face to your financial health and to your savings is the cost of long-term care.

Again, the biggest mistake you can make when buying long-term care insurance is to wait to purchase this important coverage.

I look forward to meeting with you and helping provide you with the peace of mind that comes with having the protection of long-term care insurance.

1. Conning & Company, 1999 4. Working Woman, 9/97 7. New York Times, 7/26/99

2. The Wall Street Journal, 6/22/00 5. The Boston Globe, 5/1/97 8. IRS Sec. 105 / 106

3. Business Week, 7/20/98 6. The Wall Street Journal, 3/31/99

Mission Statement

My mission is to educate as well as protect consumers from the devastating financial and psychological costs of needing long-term care. It is my goal to help families and individuals make well-informed choices when it comes to protecting their financial future. Not everyone realizes that long-term care insurance must be obtained before they become uninsurable or before they reach a point in their lives where long-term care becomes necessary. I am committed to helping you and your loved-ones make your own well-informed choices regarding this complex subject while you are still active and healthy enough to act.

About The Author

Ted A. Souter is a licensed Long Term Care Insurance Specialist in Arkansas, Louisiana and Texas.

Ted grew up in Taylor, Arkansas and attended Southern Arkansas University and holds a B.A. from Northwestern State University in Natchitoches, Louisiana, with additional business administration studies from LSU Shreveport.

Prior to becoming a Long Term Care Insurance Specialist, Ted worked for several Fortune 100 companies in advanced managerial levels of sales representation. Ted has earned and been rewarded with many top sales honors and awards along with incentive trips from companies he has represented during the past 25 years.

Involved in the insurance industry for over 15 years, and having recognized the need to focus on long term care, he chose to represent services and products with the nation’s oldest & best long term care insurers for the past four years earning the distinction and career level of “Long Term Care Specialist” with many Long Term Care insurance companies.

Ted lives in Texarkana, Arkansas with his wife and a beloved 12-year-old West Highland Terrier and enjoys many outdoor activities and water sports here in Arkansas.

To schedule a free assessment of your specific long-term care insurance needs, or to book Ted as a speaker for your group or organization please contact him at:

Ted A. Souter

Long Term Care Specialist

P.O. Box 1408

Texarkana, TX 75504-1408

Phone: (870) 774-1114

Toll Free: (866) 558-1747

ted@ArkLaTex.biz