(Excerpt)So what exactly is LTC insurance? It's insurance that covers you should you no longer be able to take basic care of yourself. (Medicare will only fully cover you for 20 days, and that's provided you meet certain criteria.) Depending on your policy, this could include expenses for a nursing home, assisted-living facility and/or home-health care. Most policies kick in when you can no longer handle two of the following activities of daily living (or ADLs), and it's anticipated that this will be the case for at least three months: dressing, bathing, eating, moving from a chair to a bed, going to the bathroom and remaining continent. Benefits are also triggered should you have a cognitive impairment (such as Alzheimer's disease) that requires substantial supervision.

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And while LTC insurance is pricey protection, its sales pitch is compelling. After all, as depressing as it is to envision a future languishing in an old-age home, it's additionally horrifying to think that this could also leave you (or your loved ones) destitute. The average cost for a year in a nursing home is now a staggering $66,153, according to the Metlife Mature Market Institute. Home health care, meanwhile, will set you back an average of $18 per hour. (Click here to review the costs in your chosen place of retirement.) And consider this: People aged 65 or older face a 43% lifetime chance of entering a nursing home, according to the Agency for Healthcare Research and Quality. And of those who do enter a nursing home, 21% will remain there for at least five years.

But don't call your insurance agent just yet. As disturbing as these statistics are, an LTC insurance policy isn't the solution for everybody. "They, in general, are oversold, because it's a scary topic," says certified financial planner (CFP) Robert Tull of R.W. Tull & Associates. "Long-term care needs to be discussed, and it needs to be planned, but you shouldn't invest in fear."

So here's what you need to consider when deciding whether to purchase a policy — and, if so, how to make sure you don't get ripped off.

LTC INSURANCE makes the most sense for middle-class folks. Wealthy people can foot the bill themselves (should the need arise), while the very poor are covered under Medicaid.

Generally speaking, if you currently have investable assets (not including your home) greater than $1.5 million to $2 million, then it may make more sense to "self insure" rather than purchase a policy, says CFP Scott Kahan, president of Financial Asset Management. Young, healthy people with many years until retirement may also be better off investing money on their own. That's because the policies themselves don't come cheap, and they pay out a limited benefit. For help with this decision, run your numbers through our new LTC Calculator.

Choosing to purchase a policy is more than just a financial decision, however. It also depends on your family's health history, as well as your alternative resources for care. These policies can be especially attractive for women, who tend to outlive their husbands, notes Bonnie Burns, director of consumer education with California Health Advocates, an association of 24 California-based health-insurance counseling and advocacy programs. Often a wife will care for her ailing husband, but will eventually have to enter a nursing home for her own care. A good LTC policy can help ensure she gets the care she needs.

ONE OF THE biggest complaints about LTC insurance is that shopping for a policy is a nightmare. "It's almost impossible to compare across policies because there are infinite variations on the theme," says Elizabeth Clemmer, associate director of the Public Policy Institute of the AARP. Policies can vary widely in terms of what they'll cover, how coverage is approved, how benefits are paid and what recourse is available for complaints or appeals.

One broad difference in policies is whether they are tax-qualified or nonqualified. While the benefits paid by either type of plan are currently tax-free (although the IRS could rule at some point that the benefits of nonqualified plans are taxable), a qualified plan adheres to the guidelines set by the Health Insurance Portability and Accountability Act of 1996. The law includes some basic consumer protections — and uses the inability to handle two ADLs for three months as a trigger for benefits. In addition, premiums for tax-qualified policies are deductible if your total medical expenses for that tax year exceed 7.5% of your adjusted gross income. (Unfortunately, few people qualify.)

But even with a tax-qualified plan, the devil is in the details. So while an agent may give you an outline of coverage before you buy, ask for a "specimen policy" (i.e., an example of an actual contract), says Joe Scinto, long-term-care counselor at the United Seniors Health Council. Read everything over carefully, looking for the plan that offers the greatest flexibility. For example, some plans will pay out benefits only once an in-house doctor has reviewed your health. Other plans will authorize payment based on your own doctor's review. You should also look out for "weasel words," warns Rob Davis, president of LTC Quote, an LTC insurance brokerage. Some companies use language that says they'll pay "prevailing" or "usual and customary" costs. Look instead for a policy that will cover "actual" costs, says Davis.

Flexibility is important because the LTC industry is constantly evolving — and you need a plan that's going to change with the times. Older plans, for example, may have covered nursing-home care or home health care, but they didn't include assisted living, since this wasn't a common form of care at the time. Some older policies have adjusted to include assisted living, while others have not, warns AARP's Clemmer. "Who knows what elder care will look like 10 years from now?" she says. "Are you going to have the capacity to take advantage of some of the things that might be coming along?" Before you sign a contract, look for wording that says something like "in certain circumstances we will consider alternate plans of care," says Davis. In some cases, companies will offer policy upgrades, which will cost more but won't require a review of your health.

And since LTC insurance is a relatively new product (the first policies were offered in 1987), look for a company that has been in the field for a few years. Some insurers have struggled with the pricing of their policies, leading to premium increases. Theoretically, once you purchase a policy, your premium should remain flat, regardless of changes to your health. The exception to this, however, is if the insurance company increases rates for an entire class of policyholders. So if a company has low-balled its premiums (intentionally or accidentally), you could wind up paying more than you bargained for. Some companies, like John Hancock, have never raised rates for existing LTC policyholders.

No matter what, make sure you go with a company you trust. After all, you may wait 20 years before you begin tapping your policy — so you need a company that's going to stick around, says Scinto. These days, more than 120 companies offer LTC insurance. If you're considering a company that you aren't familiar with, be sure to check its financial rating with Moody's, A.M. Best or Standard & Poor's.

LONG-TERM-CARE insurance isn't cheap. But then again, neither are the services it covers, says California Health Advocates' Burns. And if you cut costs by purchasing a very restrictive policy — such as one that will only cover home health care — it could come back to haunt you. "Everyone wants to be cared for at home, but you can't control that. Long-term care is unpredictable," Burns says. To read the entire article click here [url=http://www.smartmoney.com/nowwhat/index.cfm?story=200205213[/url]

Source: Smartmoney.com