Considering long-term care: having the right insurance can protect your assets.

FOR YEARS, RICHARD PAYNE, A NEUROLOGIST AND cancer specialist who lives in Durham, North Carolina, saw firsthand how patients without long-term care coverage had limited healthcare options.

"Most health insurance plans do not cover long-term care," Payne says. "They may cover a few days in a long-term care facility as part of a discharge plan, but if you need to become a resident in a long-term care facility because of a health problem, nursing needs, or a disability, those are typically not covered."

Since most of his patients didn't have the resources to pay out-of-pocket expenses ($115 per day for a visit from a home-care professional), many turned to family members to pick up the burden.

For that reason, when Payne turned 50 a few years ago, he purchased a long-term care insurance policy. "It was affordable, only about $1,200 a year for the entire benefit, and it gives me choices in terms of where I can go for long-term care."

Payne saw how long-term care expenses could drain the assets it had taken a lifetime for his patients to accumulate, a reality that compromises BLACK ENTERPRISE'S Declaration of Financial Empowerment Principle No. 6: I will preserve and protect my assets through proper financial and insurance planning. That's why we've developed this guide: to help determine what long-term care means, the costs associated with it, when you need it, and how to get it.

DETERMINING THE NEED

Long-term care encompasses the personal care and medical services required by people who are disabled or chronically ill. Long-term care insurance typically pays for those services if policyholders are unable to perform two or more activities of daily living, such as eating, bathing, toileting, or dressing; or if they are incontinent or unable to move around. Mentally impaired individuals, such as Alzheimer's patients, would also be considered unable to manage activities of daily living. Since Medicaid pays for the long-term needs of those with limited incomes and assets, footing the bill for long-term care costs falls primarily on the middle class and the wealthy. And since the wealthy can afford it, it's the middle class that really feels the load. Health insurance typically does not cover long-term care beyond 30 days, and Medicare pays only for medically essential services such as a nurse's visit, leaving many sick and disabled Americans with the burden of paying for most of the costs out of pocket.

Without long-term care insurance, "you end up tapping into your retirement, your 401(k), your investments, and your equity," says DBora Schrett, a Bethesda, Maryland-based agent for New York Life Insurance Co. In more dire circumstances, "you've got to sell your car, you've got to consider selling the house, or you've got to go to relatives that weren't prepared for this either, which leads to emotional stress."

WHO IS AT RISK?

You don't have to be elderly to need long-term care. "A 20-year-old can walk out the door and be in an accident and need long-term care," says Schrett. According to the American Association of Homes and Services for the Aging (AAHSA), 60% of Americans who live to be 65 will need long-term care. Ten percent of Americans in 2000 who needed home-care services were African American, one-third of whom were under 65, according to the U.S. Department of Health and Human Services.

"There are two kinds of people in long-term care facilities," says Payne. "'One is what I would call short-to-moderate term, where you have a stroke and need to go into a long-term care facility for rehabilitation with the idea that you'll be there for three or four weeks and you will recover, There's another population [with] more significant medical problems. They need daily nursing care: they need daily supervision, in which case long-term care may be provided for the rest of their lives."

While some argue that $1,337 a year--the average annual long-term care insurance premium for those under 65--is too much to pay for care you may never need, consider this: You could pay that amount for 50 years and still spend less than the cost of one yea in a nursing home, which averages $74,095 for a private room, according to the AAHSA.

"You really need to start looking seriously at long-term care as early as age 45," says Brenda Collins Powell, a Santa Barbara, California-based independent agent representing American Family Life Assurance Company of Columbus (AFLAC). Younger applicants for long-term care not only save money, they're also more likely to qualify since those who already have medical problems can be denied.

CHOOSING A POLICY

There are a number of things to consider when choosing long-term care insurance. Before buying, check to see what your employer offers, advises Grog Daugherty, executive editor of franchises for Consumer Reports.

Life insurance companies typically offer long-term care insurance as well, so check with your current provider and its competitors. Insurance industry associations such as the Insurance Information Institute and the National Association of Insurance Commissioners can also provide information.

You'll want the insurance provider to be around when it's time to cash in your policy, so always check the rating on the company's debt issues through firms such as Moody's Investors Services (www.moodys.com).

Policies will pay for long-term care for a specific amount of time, such as three years, five years, or an unlimited period. The cost of the premium is based on current age, health, and length of policy, as well as your selected waiting period and any extra benefits you might choose. But don't buy too much: A survey by the American Association for Long-Term Care Insurance found that only 8% of policyholders with three-year plans needed more than three years of care.

REVIEW YOUR OPTIONS

Make sure your policy gives you a choice of long-term care options and benefits. You don't want to be forced into a nursing home when you would prefer at-home care. Also, look for a policy that offers inflation protection. With nursing home costs rising 6% from 2005 to 2006, it's impossible to know how much coverage you'll need 10 years from now. With inflation protection, your benefit will adjust to cover the costs of inflation, without an increase in your premium.

Long-term care insurance policyholders do not pay deductibles, but they may have to pay for services out of pocket during the wailing period--the time after the accident or onset of illness, but before the policy takes effect. A 30-day waiting period, for example, means the policyholder pays for the first month and the insurer pays the rest. The longer the waiting period, the lower the premium. In some instances, you can overlap the waiting period on your long-term care policy with your health insurance coverage to reduce your costs.

Just as health insurance providers often deny coverage to applicants with pre-existing conditions, long-term care providers may deny coverage to those already diagnosed with certain medical conditions, so it's important to get coverage while you're still healthy.

No one likes to think about needing extended care, but it pays to be prepared. Not only does long-term care insurance provide for your well-being, it should be part of your overall wealth strategy.

According to the AAHSA, the average annual premium for long-term care insurance:

under 65 years $13,337

65 years & older $1,862

If you buy a three-year policy and you need long-tern care for five years, you will have to pick up the costs yourself once the three-year period is over.

Average stay in a nursing home: 2.5 years

ILLUSTRATION BY CHRIS MURPHY

THE COSTS OF LONG-TERM CARE

Average Annual                      $ 1,337 (under 65)
Long-Term Care Premium              $ 2,862 (65 and over)

Average Annual Cost                 $74,095
of Nursing Home (Private Room)

Average Annual Cost                 $28,548
of Assisted Living Facility

Average Annual Cost of Continuing   $32,064
Care Retirement Community

Average Annual Cost                 $20,160
of Adult Day Services

SOURCE: AMERICAN ASSOCIATION OF HOMES AND SERVICES FOR THE AGING