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Money Management (Distributed by the New Jersey Society of Certified Public Accountants)

Smart Ways To Cut The Cost Of Long-Term Care Insurance

There's no denying it: long-term care insurance is expensive, particularly for buyers in their sixties and seventies. But it's also very important, especially for those who want to protect their assets from being depleted by an extended hospital or nursing home stay.

The cost of long-term care insurance can range from $250 a year for a healthy forty-something buyer to more than $6,000 for a 75-year-old. Of course, the actual premium you pay depends on a number of other variables, including health, location and the level of benefits.

However, there are some steps you can take to reduce the premium cost of a long-term care (LTC) policy. The New Jersey Society of Certified Public Accountants (NJSCPA) provides the following suggestions for keeping long-term care premiums under control.

Buy while you're young. The younger you are when you purchase a long-term care insurance policy, the lower your premium cost. Consider buying coverage before you reach age 60, which is the point when premiums begin to rise. If you have concerns about potential health problems, you may want to purchase coverage at an earlier age. Recognize, of course, that by buying earlier
you'll be paying for a much longer period of time.

It's also important to understand that buying coverage when you're young doesn't necessarily protect you against price increases. Although an insurer cannot raise the premium on your policy alone, state regulators may allow the company to increase premiums for all policyholders in a particular class.

Choose a shorter benefit period. The benefit period is the number of years for which your policy pays benefits. You can choose the number of years of coverage you want, typically anywhere between one year and lifetime benefits. Since most long-term care needs typically last less than three years, you can save money by choosing a shorter benefit period.

Go with a longer elimination period. The elimination period is the number of days that you must receive long-term care services before your policy begins to pay benefits. Common waiting periods are 20, 30, 60, 90, and 100 days. The longer the elimination period, the lower the cost. Look for a policy that requires that you only meet the elimination period once during your lifetime.

Accept a limited benefit amount. The benefit amount is the dollars per day that the policy pays. Typically, a policy can pay anywhere from $50 a day up to the full cost, with the premiums rising accordingly. Paying part of the daily costs out-of-pocket can reduce your premium. For example, if nursing home costs in your area currently run $175 a day and you can afford a plan that pays only $100 a day, don't hesitate to sign up. After all, some coverage is better than none at all.

Let Uncle Sam share the cost. If you buy long-term care insurance - either through your employer or on your own - part of the premium may be deductible on your tax return as a medical expense, provided that the policy is "tax-qualified." (All LTC policies issued prior to 1997 are tax-qualified, but those issued after that date must meet government established standards in order to qualify.)

The annual deductible amount is based on your age at the end of each tax year. In 2002, the amount ranges from $240 for taxpayers 40 or younger, to $2,990 for those over 70. If your total medical expenses, including the cost of your LTC benefits, exceed 7.5 percent of your adjusted gross income, the excess can be treated as an itemized tax deduction. Incidentally, benefits received under a tax-qualified long-term care policy are generally tax-free.

Buy group coverage. Many employers now offer LTC insurance as an optional employee benefit. Usually, the employee and the employee's spouse and parents are eligible to buy coverage. Group coverage is generally less expensive than a comparable individual policy.

Ask about spousal discounts. If you and your spouse are both planning to get coverage, find out if your insurer offers a discount.

Match your age with the need for inflation protection. Although it adds to the cost, CPAs suggest that you purchase an inflation rider so your coverage keeps pace with rising costs. This is especially important when you buy your coverage when you are young.

Shop around. Premiums can vary significantly from company to company for essentially the same policy. Compare the benefits and costs of several insurers, but be sure that the company you select has a proven track record in long-term care.

CPAs point out that although premiums for long-term health care may appear to be high, the peace of mind the coverage provides is immeasurable. By examining your assets and your long-term financial goals, a CPA can help you determine whether long-term care insurance makes sense for you and provide additional information on making your purchase affordable.

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Money Management is a weekly column on personal finance distributed by the NJSCPA.

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