Ensuring care: age, needs among factors to consider when selecting long-term care insurance.

Statistics indicate that our population is aging at a staggering pace. In 2002, 30 percent of all non-institutionalized people age 65 or older lived alone, representing 41 percent of older women and 18 percent of older men, according to the U.S. Department of Health & Human Services.

The proportion increases with age, as more than 49 percent of all women age 75 and over lived alone in 2000.

Further, individuals age 85 or older grew 38 percent between 1990 and 2000, according to the U.S. Census Bureau.

And California has two cities--Los Angeles and San Diego--among the top 10 U.S. cities with the largest populations of people 65 years old or older, according to the U.S. Census Bureau.

The dramatic increase in older Americans, as well as the increased number of individuals living alone without someone else to provide care for them, increases the urgency surrounding decisions about long-term care services and long-term care insurance policies to pay for those

services.

WHEN TO BUY?

Clients often want to know when is the best time to buy long-term care insurance. While there is no easy answer, the phrase "timing is everything" comes into play.

Mathematically, clients should buy long-term care insurance the day before they get sick or hurt and either require immediate long-term care benefits or at least become ineligible to buy a policy due to health considerations.

Of course, no one can predict such a day, which is where timing--specifically your age--comes into play.

The average age of individual policy purchasers has decreased from 72 in 1990, to 62 in 2001. That's good news considering that insurance costs increase with age and the older you are, the greater risk you run of not qualifying for insurance.

Consider the following:

* At age 70, you are 25 percent more likely to be downgraded for health and have to pay higher premiums than at 60.

* At age 70, you are twice as likely to be declined for long-term care insurance than at age 60, according to the California Partnership for Long-Term Care.

* Insurance costs increase exponentially with age, so they are much higher the longer you wait.

All this points to the fact that you run the risk of not qualifying for long-term care insurance the longer you wait.

A rule of thumb is to consider purchasing a policy as you approach 50 years old--or when you no longer have primary responsibility for the financial support of your kids and can begin preparing for your own retirement if that date is earlier.

At this age, the cost is low, your financial responsibilities are typically low and the risk that you will become uninsurable is as low as it will ever be, assuming you're in good health.

The annual cost increases become steeper as you get older; dramatically larger after age 70. This often results in the aggregate premium to be paid over the lifetime of the insured to be significantly higher over the shorter time frame if the insured waits to buy a policy until later in life than it would be if the policy was purchased earlier.

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Many companies also restrict the availability of policies and reduce the benefits available to applicants who are 80 years old or older. Yet one more reason that timing considerations are critical.

KEY POLICY PROVISIONS

The design of a long-term care insurance policy requires careful consideration. Many people don't purchase a policy because they feel the cost is more than they can afford. However, careful selection of policy provisions can enable them to own an affordable policy and lessen the amount of future out-of-pocket expenses.

That said, every long-term care insurance policy should contain a series of basic benefit provisions, including a daily benefit that matches the cost of nursing home facilities in your geographical area. For Californians, the average cost of nursing home care is $170 to $180 per day according to the California Partnership for Long-Term Care.

If your policy amount is less than that--or you choose a benefit level less than that--you pay the difference. It is important to have residential care and nursing facility benefits, as well as provide for home care benefits. I like to design a policy with maximum home care benefits because most clients prefer to remain in their own home as long as possible.

Inflation protection that will increase daily benefits after the inception of the policy is another must, especially for younger policy buyers. The cost of the policy can be managed by adjusting the length of the benefit period.

It is also possible to increase the waiting period for benefits to begin to 90 days or longer after illness or injury makes you eligible for policy benefits. I prefer to use the shortest available waiting period offered by the insurance company.

The premium reduction for extending the waiting period is not as significant as the impact for reducing the length of the benefit period.

CALIFORNIA PARTNERSHIP FOR LONG-TERM CARE

For California residents, the California Partnership for Long-Term Care, www.dhs.ca.gov/mcs/cpltc/default.htm, offers long-term care insurance policies that should be given strong consideration over traditional individual or group policies. These policies are offered by many of the same top companies that sell traditional individual or group policies.

Special agent training must be completed by all those selling California Partnership policies, which ensures a certain level of professionalism, trust and product knowledge on the part of the sellers.

Other benefits of California Partnership for Long-Term Care are:

* Minimum benefit amounts and waiting periods for benefits are mandated to guarantee that each policy will be enough to meet the demands for long-term care costs policyholders will face in the future.

* Care coordination services are required so that policyholders have a specialist to supervise the selection of the long-term care services they need.

* All California Partnership policies are tax qualified. They require that the policy have a 5 percent compound inflation benefit until age 70. Thereafter, simple or compound inflation at 5 percent is required. Waiver of the premium is a mandatory benefit so the insured will not pay premiums while collecting a long-term care benefit.

* The policies have a dollar-for-dollar asset protection to safeguard the assets in the insured's estate for each dollar of long-term care benefit received in the event the insured requires Medi-Cal benefits.

* The policies have safeguards to limit future premium increases. Premiums on individual policies with the same companies would not be subject to these premium limits in the absence of the California Partnership branding.

A strategy can be implemented to minimize the premium cost by matching the length of the benefit period to expire at the time the client will become eligible for Medi-Cal long-term care benefits. In many cases, the benefit period can be limited to three years.

The current look-back period for gifts made by a person prior to receiving public aid for long-term care benefits from Medi-Cal is three years. The insured can make gifts of assets to heirs at the beginning of the three-year period. Those gifts would become final and not subject to the look-back period recovery of benefits paid provision under Medi-Cal. The gifted assets would remain the property of the donees of the insured client.

EVALUATING INSURANCE PROVIDERS

Many insurance companies offer long-term care policies and care should be taken to select a company that will provide the policy benefits that will stand the test of time.

Insurance companies are rated by a variety of companies, such as Moody, Standard & Poor, Weiss and A.M. Best, which evaluate the companies based on financial stability, credit worthiness and claims paying ability. Statistics are also available about how long companies have sold long-term care policies and the company's premium history with their respective program.

Since the initial premium is not guaranteed by the company over the life of the long-term care policy as it is with other types of insurance, the lowest premium available when you buy the policy may not be the best value over time.

A company's track record also provides valuable information relevant to the policy selection. Many of the more reputable companies are represented in the California Partnership.

BY IRVING M. EISENBERG, CPA 

Irving M. Eisenberg, CPA/PFS, CFBS is president of San Diego-based Wealth Manager Group and chair of the Eldercare Task Force of CalCPA's Personal Financial Planning Committee. You can reach him at [phone] or [e-mail].