Why long-term care insurance must pre-date retirement

PFA: Long-term care insurance is relatively new and has not yet been introduced to the Jamaican market, although it is a part of the insurance market in the United States where you reside. It seems that the maximum age at which it can be bought varies from country to country. In Canada, for example, it can be bought certainly at age 65.

Let me now move on to a general discussion of long-term care insurance. It is an insurance product that provides a range of health and personal-care services for insured persons who are unable to care for themselves due to disability, catastrophic illnesses, and age.

It covers services provided in the homes of the insured or in a residential health-care institution such as a nursing home. It provides coverage for which most health plans provide little or no coverage, and its benefits are not restricted just to the elderly.

Long-term care insurance covers the cost of services up to the amount of the stated daily benefits, but there is also a maximum monthly benefit with a lifetime maximum. The insured must first satisfy the elimination or waiting period, which may vary from zero to 365 days, before qualifying for a benefit. Some insurance companies pay a fixed-dollar amount for each day that care is provided; others pay a percentage of the cost of services.

Whereas some companies cover care provided at home and residential facilities such as nursing homes, others restrict coverage to services provided in a nursing home or licensed health-care facility. Eligibility for benefits is measured on the ability or inability of the insured to perform the usual activities of daily living, bathing, dressing, toileting, mobility, eating, and continence. How these are evaluated varies from company to company.

As with life insurance, premium rates are higher the older the insured is when coverage is obtained, but because of the general increase in the cost of health care, it is prudent to consider inflation protection where it is available. Some policies allow a waiver of premium once benefits commence. Some companies evaluate mental functions to determine qualification for benefits.

There are several factors which make this form of insurance appear unattractive. It is expensive and the skyrocketing cost of health care makes it even more so while at the same time reducing the share of the cost that the insurer bears. Benefits are limited and there are many restrictions and conditions. It may cover only a small percentage of the cost of care and should be seen primarily as a means of supplementing other sources of funding.

It is beneficial in the following ways. It provides funds to pay for health-care services and enables the insured to maintain a greater level of independence. It provides some protection of savings and eases the burden of care on relatives and loved ones.

LIQUIDATION

The absence of long-term care insurance may make it necessary to liquidate savings, liquidate retirement savings, sell valuable assets such as a home, use up the cash value of life insurance policies, or depend on children, other family members, or the State.

Long-term care insurance is a safety net, not an investment. It is not designed to cover all the costs of long-term care, and its high cost raises the question of whether it would not be better to invest funds to meet such costs when they arise, if they do. The problem with this position, though, is that such care may be needed from a relatively young age.

Disability caused by accident, serious illness, and advanced age complicated by chronic illnesses has the potential to derail even a reasonably good financial plan. The ability to successfully meet the high cost of health and personal care in such circumstances does not rest solely with insurance. Other strategies including a good savings and investment programme and the maintenance of excellent social relations, especially with family, are critical.

Oran A. Hall, a member of the Caribbean Financial Planning Association and principal author of "The Handbook of Personal Financial Planning", offers free counsel and advice on personal financial planning. Email: finviser.jm@gmail.com.