Our chance for needing long term care (LTC) increases the longer we live. Directly paying for LTC can easily deplete an average person's estate leaving a beneficiary with no legacy. You can purchase LTC insurance to protect your legacy. But you must understand if the 7 key parameters of your policy will do the trick for you. These are explained below.



Long term care consists of helping a person with performing his daily activities (eating, bathing, toiletry, etc...) when he no longer can do them alone. Helping an elderly to doing these can occur at home, at a day center or at a nursing home at approximate yearly cost of $15,000, $30,000, and $80,000 respectively.

Without sufficient income and an estate of a few hundred thousand, such costs - especially at a nursing home - can wipe you out in a few years. You can use long term care (LTC) insurance to help preserve your estate as a legacy. But you better know what parameters determine how effective that insurance will be in your situation.

The seven parameters that characterize most LTC insurance policies are:

1. Services are covered

2. Excluded coverage

3. Triggering event for coverage

4. Elimination period

5. Maximum daily benefit

6. Length of coverage of benefits

7. Cost of premiums

Service covered may include medical, personal and social services. This can include

* Help in your home with daily activities like bathing, dressing, eating and cleaning.

* Community programs, such as adult day care.

* Assisted living services that are provided in a special residential setting other than your own home. These services may include meals, health monitoring, and help with daily activities.

* Visiting nurses.

* Nursing home care

Examples of excluded coverage are:

* Mental and nervous disorders or diseases

* Alcoholism and drug addiction

* Illnesses caused by an act of war

* Treatment already paid for by the government

* Attempted suicide or self inflicted injury

Often one slowly slips into the need for long term care. So some policies require a test of the elder's cognitive impairment that will trigger benefit coverage.

To reduce premium costs, you can choose a longer elimination period. This is the time after the triggering event that you must wait until the policy starts paying for coverage. During the elimination period - perhaps 30, 60, or 90 days - you'll have to pay whatever LTC costs come up.

When LTC insurance benefits do begin, daily coverage is limited - depending on your insurance premiums choice. Typical daily benefit limits may be $50, $200, or $350. You're responsible to pay any LTC costs in excess of your daily benefit limit.

How long your benefits will be paid is up to you - and your choice of insurance premiums. You may want benefits paid for only 2 or 3 years. With higher premiums you can have benefits paid for the remainder of the elder's life. Statistically, less than half of elderly nursing home patients last longer than 3 years before death.

The earlier in life you begin paying LTC insurance premiums, the less expensive they are for the same benefits. Beginning at age 65 the premium cost may by about $2,000 per year; beginning earlier at age 50 it may be $1000; or as high as $6,000 for waiting to begin at age 75.

Lastly, you must understand if your LTC insurance premiums will increase over time - and why. You may accept increasing premiums to protect your daily benefits from the effects of inflation - especially if you don't expect to need LTC care for many years. Clearly your choice of elimination period, coverage areas, daily benefits all go into determining your premium costs. So you should adapt these costs - and the benefits they imply - to your situation.

If you have $500,000 in assets and significant income, you may choose higher elimination periods because you can cover LTC costs for a while without depleting your assets. On the other hand, if you've only about $150,000 and a lower income, you can't afford to pay significant LTC costs on your own for long. It's all a tradeoff to preserve your estate at the least expense to you.

If you're on the low side of assets and income, but LTC insurance premiums are high, you might want to consider transferring most of your assets while you're living in return for some income help from your beneficiary. Doing this earlier enough will allow you to have Medicaid pay your long term care for you.