Insurance and life

People are living longer and generally healthier lives. The average life expectancy is now 79 years for women and 72.4 years for men (National Center for Health Statistics, 1996). And with better living conditions, nutrition, and medical care, people will probably live even longer in the future.

But there's a downside. Longevity is increasing the need for health care. It is estimated that 48% of Americans over age 65 will need skilled nursing facility care and the cost of this care varies (AARP National Nursing Home Study 1996). For example: in New York, the average annual cost of nursing home care is over $70,000; in Florida, it is over $45,000 and in California it is over $51,000 a year (General Accounting Office, testimony before the Special Committee on Aging, U.S. Senate, 3/9/98). Your plan should consider protection for the long-term care you may need in your later years.

Long-term care (LTC) insurance policies help cover the costs of extended nursing home care. Some policies also cover assisted home care, adult daycare centers, and other community-based care facilities.

Policies are flexible in design, letting you tailor the coverage to fit your financial needs and circumstances. You must be in good health to purchase a policy. Premiums may be high and are based on age, health, geography, and the benefits you select when you purchase the policy.

If you're under 50, you might think you're too young to even consider purchasing long-term care insurance. Chances are, it will be a long time before you need long-term care. But as with life insurance, it's much cheaper to buy when you're young, and it will probably also be easier to qualify when you're younger and healthier.

t's important to make sure that your long-term care policy is "tax qualified" under the Health Insurance and Portability and Accountability Act of 1996. That way, you can take advantage of potential tax savings by itemizing the premiums as deductions on your income tax return. More importantly, benefits paid under the policy are not taxable income.

While long-term care insurance can be more costly than traditional health insurance, spending a bit more now can help ensure that the contract protects you against inflation. Since you probably won't collect benefits until decades after you purchase the policy, reimbursement amounts that seem fine now could be inadequate later on because of inflation.

Many people mistakenly think Medicare covers long-term nursing care services. Unfortunately, Medicare only covers nursing home costs for a short time period (usually limited to 100 days), provided you are convalescing after a hospital stay. Prolonged long-term care needs--such as those brought about by debilitating or degenerative diseases--are not covered by Medicare.