As you move toward retirement, and certainly no later than in your 50s, you should consider obtaining insurance against the high cost of nursing care that is typically needed late in life – long-term care insurance. As a federal employee or annuitant, you have access to the Federal Long-Term Care Insurance Program, one of the best sources available.

The odds of needing long-term care and its cost are extremely high. The odds of needing care are greater than 50 percent if you live past age 65, and the cost exceeds $200 per day in many urban markets. In addition, the decisions you make now about how you’ll pay for care if you need it later will have a profound effect on the quality of care you’ll receive and the quality of life you and your family will enjoy then and in the meantime. Whatever you decide, you’re effectively electing insurance; it’s simply a matter of who will pay – an insurance company, you and your family, or the government.

One of the strengths of the federal program is its simplicity, and it is harder to make mistakes there than in the retail market. Still, there are a few choices to make and making them in light of the facts, rather than emotion or sales pitches, will help you to avoid mistakes.

The amount of insurance you buy is determined by the interplay of two factors: the daily benefit limit and the lifetime maximum benefit limit.

The daily limit is the maximum rate at which reimbursement for your nursing expenses will flow. The federal program offers a choice, in $25 dollar increments, of between $50 per day and $300 per day. To determine the daily benefit you need, look up the average cost of care in the area where you’ll most likely live in retirement – at – and subtract from that average or from a preferred provider’s cost the amount of your own resources you can contribute to care. You may also convert your daily benefit to
a weekly or monthly benefit limit in certain cases. This typically increases the cost of the policy by 5 percent to 10 percent, however, and I don’t think it’s worth the price.

Once you’ve selected the daily benefit limit, you’ll need to select the lifetime benefit limit. This is done by selecting a minimum limit on the amount of time the benefits will last, if used at the full daily benefit limit. These limits range from one year to unlimited, depending on the carrier. The federal program offers a choice of three years, five years or unlimited. Since it is highly unlikely that a full-time need for care will last more than five or six years, the smart place to start here is five years.

Ultimately, your policy’s limit will be a dollar amount determined by multiplying the number of years you’ve selected – counted in days – by the daily benefit limit. For example, if you choose $200 as the daily benefit limit and five years as the benefit period, your lifetime benefit limit will be $365,000 – $200 times 365 days times five years.

Most good policies allow you to spend at less than the daily benefit limit and extend the length of time that benefits are available for as long as the money in the policy lasts. So, the benefit period represents the shortest period during which you can deplete the policy’s benefits, not the longest.

In addition to the dollar limits, you’ll have to choose an inflation protection option and a deductible, elimination or waiting period. The starting points for these two variables should always be 5 percent, or the maximum available, automatic compound inflation adjustments and a 90-day elimination or waiting period.

Applicants over age 70 might consider buying a higher daily benefit limit in combination with less aggressive inflation protection and wealthier applicants might be able to live with a longer waiting period, but this is the exception, rather than the rule.

Written by Mike Miles
For the Federal Times
Publication July 7, 2008