Long-Term Planning

In the seminars I conduct about retirement planning, the subject of long-term care insurance always seems to generate a fair amount of confusion. I wrote about this subject two years ago in a three-part series titled "The Long Haul." You can find it here:

• Part One
• Part Two
• Part Three

Since there still seems to be some uncertainty about whether long-term care insurance is necessary and how it works, I thought I'd take up the subject again.

The inspiration for this week's column came from a weekly radio show that I host with my colleague Bob Leins at the National Institute of Transition Planning. The show, "For Your Benefit," airs on Saturday mornings at 10 in Washington on AM 1050, or at federalnewsradio.com. The shows also are archived at the Federal News Radio site.

On July 12, our guest was Tom Bebbington, a senior account manager at Long-Term Care Partners, a joint venture of John Hancock and MetLife that administers the federal long-term care insurance program. The government's current contract for the program will expire next spring, so some changes may be on the way.

Regardless of what happens, those who already have purchased long-term care insurance will still have it. And those who are interested in getting a policy should continue to pursue enrollment.

Federal employees and annuitants, including members and retired members of the uniformed services, and qualified relatives are eligible to apply for coverage under the Federal Long-Term Care Insurance Program. Once you are enrolled, you may continue to participate for life, even if you or your relative is no longer employed in government.

Should you sign up? To help you decide, here are examples of what long-term care insurance is and is not.

What It's Not

• Health insurance, which pays for skilled care provided by doctors, nurses, physical therapists and other professionals skilled providers in hospitals, rehabilitation facilities and, in some cases, nursing homes.
• Disability insurance, which provides protection for you and your family in case you aren't able to work. This guarantees replacement income when your salary stops.
• Life insurance, which is protection for your family and other heirs who depend on your income in the event of your untimely death. Long-term care insurance provides a resource while you are still living.
• Needed by everyone. Wealthy individuals may have the resources to pay for personal care that may be necessary as a result of an accident or an illness. On the other end of the spectrum, those with very few assets and little income may qualify for Medicaid benefits to cover such costs. Low-income veterans and widows and spouses of veterans may receive a variety of federal benefits. And obviously, those who die quickly won't have long-term care expenses. Of course, you can't exactly plan for that scenario.
• Available to everyone. All long-term care policies have some medical underwriting. If you can't pass the underwriting, you may not get coverage or the type of coverage you desire. Someone who already has an illness that could result in needing long-term care probably will not qualify for a policy. If you want this type of insurance, you should apply for several policies. Some companies outside of the federal program may have different underwriting requirements.

What It Is

• A way to pay for the expense associated with custodial or personal care that can protect other assets you've built up during your career.
• A resource that can be used to provide the essential income to hire help when you need care. The ability to pay for this care can relieve your family members of the burden of being caregivers.
• Less expensive if you purchase it at a younger age. Most people who have bought long-term care insurance purchase a policy between 40 and 60. It is available for younger people, but most of them have other needs for their income (raising children, buying a house and saving for retirement). At later ages, the cost may be prohibitive.
• More affordable than you may think. The main factors that determine the cost are your age at the time of purchase and the amount of coverage. Here is a calculator that can compute the premiums of the federal long-term care insurance benefit for a pre-packaged insurance plan. You also can customize your own benefit.
• A way to pay for services other than the costs of a caregiver or the daily rate of an assisted living facility or a nursing home. The federal plan, for example, can be used to pay for modifications to your home such as a wheelchair ramp or a wider doorway. And it can be used to pay for training an informal caregiver such as a relative or a friend.

Planning Ahead

Part of planning for the future includes thinking about life's what-ifs. Needing long-term care is something that we hope never happens to us or our loved ones, but the fact is, if we are fortunate to live a long life, our likelihood of needing long-term care increases dramatically. Be smart and realistic about this future possibility. For more information, visit the Federal Long-Term Care Insurance Program Web site. It includes basic information, prices and applications.

Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.