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Long Term Insurance Basics

At least 70% of people over age 65 will require some long term care services at some point in their lives. In most circumstances Medicare and private health insurance do not cover the majority of long term care services people need: assistance with bathing or dressing.

Long term care insurance provides financial protection from the exorbitant cost of long term care. Most long term care insurance policies will cover the cost of care in a nursing home, adult care center, assisted living facility or your own home.

Significant discounts are available for those that apply as husband and wife or as partners (same or opposite gender). Additional discounts are available for applicants with preferred health.

Long term care insurance can be a powerful estate planning tool. Certain long term care insurance policies can protect an unlimited amount of your assets from Medicaid.

Many states have introduced long term care partnership programs. These long term care partnership programs work in conjunction with the state's Medicaid program to shelter assets from Medicaid consideration and are a powerful estate planning tool.

Many long term care partnership programs are based on a dollar for dollar basis. Each dollar of benefit paid by the long term care insurance policy protects a dollar of assets from Medicaid.

For example, if the policy were to pay $900,000 in benefits, $900,000 of assets would be excluded from Medicaid consideration.

The New Jersey Long Term Care Insurance Partnership Program is an example of a program that allows for dollar for dollar asset protection. The purpose of the New Jersey Long Term Care Insurance Partnership Program is to help New Jerseyans financially prepare for the possibility of needing nursing home care, home care or assisted living services someday.

Some long term care partnership programs are based on a total asset protection basis. Under these long term care partnership programs an unlimited amount of assets are protected from Medicaid from the inception of the policy.

For example, with a total asset protection policy, if you owned a $2 million dollar home, a $3 million dollar vacation home, a $4 million 401(k) account and a $1 million 403(b) account, all of your combined $10 million of assets would be 100% protected from Medicaid.

The New York State Partnership for Long Term Care is an example of a program that allows unlimited asset protection. The purpose of the New York State Partnership for Long Term Care is to help New Yorkers financially prepare for the possibility of needing nursing home care, home care or assisted living services someday.

Establishing long term care insurance immediately reduces the financial and psychological burdens that will ultimately plague most families when the need for long term care arrives. Like most insurance, the earlier you start your long term care insurance policy the lower the cost of your long term care insurance policy.

Skloff Financial Group is a member of LTC Tree:

www.longtermcareinsurancetree.com

Free Long Term Care Insurance Quotes

Long Term Care University - Question of the Month

Long Term Care University - 01/15/10
Research
By Aaron Skloff, AIF, CFA, MBA

Q: Some of the long term care insurance policies I am researching allow for a monthly home care maximum benefit instead of a daily home care maximum benefit. Can you explain what that means and what advantages it may provide?

The Problem – Daily Home Care Maximum Benefit
Most long term care insurance policies are designed with a daily home care maximum benefit. Unfortunately, you may need more care than a daily home care maximum benefit will reimburse on any given day. Fluctuating expenses are quite common with home based long term care.

For example, after an outpatient procedure, your physician recommends you have your home health aide stays in your home 24 hours a day for two consecutive days. Your physician also recommends that the home health aide stay in your home from the time you go to bed at night until the time you wake in the morning for three consecutive days.

While the normal hourly rate for your home health aide is $25, shifts requiring more than six consecutive hours or overnight stays have additional fees. Although your long term care insurance policy’s daily home care maximum benefit of $200 per day is sufficient for most days, the costs of long shifts and overnight stays drives your costs well above the $200 daily limit – leaving you with significant out of pocket costs.

The Solution – Monthly Home Care Maximum Benefit
Some long term care insurance policies are designed with or provide the option to add a monthly home care maximum benefit. With this benefit you can convert to a monthly home care maximum benefit equal to 31 times the daily maximum benefit. This applies to the combined total of all expenses incurred during any one calendar month. Instead of a $200 daily benefit you would have a $6,200 monthly benefit. This gives you greater flexibility in managing your home health care expenses. Let’s use the example above to see the outcomes of a daily home care maximum benefit versus a monthly home care maximum benefit.

Day of Wk Expenses Incurred Daily Home Care Max Benefit Out of Pocket Expenses Monthly Home Care Max Benefit Out of Pocket Expenses
Monday____$500______________$200________________________$300__________________$6,200________________________$0

Tuesday____$500______________$200________________________$300__________________$6,200________________________$0

Wednesday_$500______________$200________________________$100__________________$6,200________________________$0

Thursday____$500______________$200________________________$100__________________$6,200________________________$0

Friday_______$500______________$200________________________$100__________________$6,200________________________$0

Total_______________________________________________________$900_________________________________________________$0

In this example you would have $900 in out of pocket expenses with a daily home care maximum benefit versus zero out of pocket expenses with a monthly home care maximum benefit. While adding a monthly feature to a daily benefit policy may add 5% to the cost of the overall policy, it could more than make up for the additional cost if you have just one week of high expenses over the life of the policy.

Action Step – Protect Yourself with a Monthly Home Care Maximum Benefit
When you purchase a long term care insurance policy with a monthly home care maximum benefit you protect yourself from large out of pocket home health care costs in any one particular day or week.

Aaron Skloff, Accredited Investment Fiduciary (AIF), Chartered Financial Analyst (CFA) charter holder, Master of Business Administration (MBA), is the Chief Executive Officer of Skloff Financial Group, a NJ based Registered Investment Advisory firm. The firm specializes in financial planning and investment management services for high net worth individuals and benefits for small to middle sized companies. He can be contacted at www.skloff.com or 908-464-3060.

Long Term Care University - Question of the Month

Long Term Care University - 12/15/09
Research
By Aaron Skloff, AIF, CFA, MBA

Q: Can long term care insurance be offered as a company benefit to our employees? If so, are there any tax advantages for employers or employees? Are there still tax advantages for individuals who purchase a policy on their own?

The Problem – Attracting and Retaining Valuable Employees
A company’s success or failure is oftentimes determined by the quality of its employees. Offering an attractive benefits package can be a key element in attracting and retaining the highest quality employees. Employees seek out benefits packages that offer a competitive salary, health insurance, retirement plan and long term care insurance. Both employers and employees recognize the hidden costs of giving long term care (interruptions and decreased productivity), as well as the staggering costs of long term care.

The Solution – Offer Long Term Care Insurance as a Company Benefit to Employees
Whether the business is a sole proprietor or multi-national corporation, long term care insurance can be offered as a company benefit. Unlike most company benefits, which prohibit the employer from discriminating, long care insurance can be offered on a limited or unlimited basis at the company’s discretion. Employees of companies with multiple participants can receive simplified underwriting for themselves and their family members, portable coverage if they leave the employer and group discounts.

Tax Advantages for Employers
C corporations can deduct the full amount of tax qualified long term care insurance premiums paid for employees, their spouses and dependents as a business expense. Sole proprietors, partnerships, limited liability corporations (LLCs) and S corporations can follow the same guidelines with deductions limited to the full eligible amount (limited to the chart below). Employers paying for employees, their spouses and dependents domiciled in certain states may also be eligible for either tax credits or deductions for premiums they pay. For example, New York state provides a 20% tax credit.

Tax Advantages for Employees or Individuals Purchasing Their Own Policy
Employees and individuals purchasing their own tax qualified long term care policy receive benefits federal income tax free, up to $280 per day (including indemnity benefits). Benefits above $280 are still federal income tax free up to the actual long-term-care costs. Employees who pay all or a portion of the tax qualified long term care insurance premiums for themselves, spouses and dependents (and individuals purchasing their own policy) may be able to deduct all or a portion of the premium on their federal income tax return. Employees and individuals purchasing their own policy living in certain states may also be eligible for either tax credits or deductions for premiums they pay. For example, New York state provides a 20% tax credit.

Employees and individuals purchasing their own policy can add the tax qualified premium (limited to the chart below) to other medical expenses (health and dental insurance premiums, insurance co-payments, out-of-pocket prescription costs, and other unreimbursed medical expenses). Amounts in excess of 7.5% of adjusted gross income (AGI) can be itemized as a medical expense deduction on Schedule A of Form 1040 of federal income tax return.

Age Before the Close of the Taxable Year Premium Deduction Limit 2009 Premium Deduction Limit 2010

40 or less_____________________________________$320 _______________________$330

More than 40 but not more than 50_____________$600________________________$620

More than 50 but not more than 60 _____________$1,190______________________$1,230

More than 60 but not more than 70______________$3,180______________________$3,290

More than 70___________________________________$3,980______________________$4,110

Action Step – Offer Long Term Care Insurance as a Company Benefit to Employees
Whether you are a sole proprietor, the benefits director of a mid sized LLC or the CEO of multi-national corporation, implementing long term care insurance as an employee benefit can have tremendous qualitative and quantitative benefits.

Long Term Care University - Question of the Month

Long Term Care University - 11/15/09
Research
By Aaron Skloff, AIF, CFA, MBA

Q: Some insurance companies offer Partnership Qualified long term care insurance policies. Can you explain what that means, what advantages it may provide and if the Connecticut Partnership for Long Term Care is unique?

The Problem – Limited Benefits and Limited Medicaid
Most long term care (LTC) insurance policies provide a limited amount of benefits. Even lifetime benefit policies generally have a daily, monthly or annual limit. The cost of long term care after a policy has been exhausted can be financially devastating for you and your family. To compound the problem, assistance in the form of Medicaid is generally limited to the impoverished.

The Solution – Partnership Qualified Long Term Care Insurance Policies
The Partnership Program is based on the Robert Wood Johnson Foundation program called the Program to Promote Long Term Care Insurance for the Elderly, initiated in 1987. Today, a Partnership Program is a “partnership” between a state, an insurance company and state residents who buy long term care Partnership policies. With a Partnership Qualified policy you can apply for Medicaid with ‘asset disregard’. This allows you to keep assets that would otherwise be disallowed. In almost all states that have Partnership Programs, the amount of assets Medicaid will disregard is equal to the amount of the benefits you actually receive under your LTC Partnership Qualified policy. This type of disregard is often referred to as Dollar for Dollar.

The Connecticut Partnership for Long Term Care
Let’s say you are a Connecticut (CT) resident who purchases $377,800 (the average rate of a private nursing room for an average three year stay in CT in 2009) worth of insurance through a CT Partnership Qualified policy. When the care is needed, the policy actually pays for $1.5 million of care (due to inflation protection). Under the CT Partnership Program you would then have $1.5 million of assets protected from CT Medicaid. Thus, the Connecticut Partnership for Long Term Care provides Dollar for Dollar asset protection. However, your income is considered in determining your eligibility for Medicaid.

The Connecticut Partnership for Long Term Care has minimum criteria, designed in part to protect the policyholder and in part to protect the state’s Medicaid program. Lest we not forget, this is a Partnership Program. Both the lifetime and daily, weekly or monthly benefits must increase at a 5% compound inflation protection rate for persons under the age of 65. Only the daily, weekly or monthly benefits must increase at a 5% compound inflation protection rate for persons age 65 and over.

Although there is no requirement for lifetime benefits to increase at 5% per year for persons age 65 and older, foregoing the inflation protection could limit the amount of assets protected from CT Medicaid. By increasing only the daily, weekly or monthly benefits the policyholder could deplete their benefits much faster than a policy that increases both lifetime benefits and the daily, weekly or monthly benefits. The key criteria of the Connecticut Partnership for LTC are listed below.

Minimum Daily Minimum Daily Minimum Inflation Protection of Minimum Inflation Protection of

Benefit 2009 2010 Benefits Under Age 65 Benefits Age 65 and Over

Nursing Facility $184 Nursing Facility $193 Lifetime 5% Compound Lifetime No Minimum

Home Care $92 Home Care $96.50 Daily, Weekly or Monthly 5% Compound Daily, Weekly or Monthly 5% Compound

Often Overlooked – Power Benefit of the Connecticut Partnership for Long Term Care
Connecticut Partnership for Long Term Care policyholders are guaranteed a 5% discount on nursing home rates in Connecticut.

Action Step – Purchase a Long Term Care Partnership Policy
When you purchase a Partnership Qualified policy, you gain the safety of long term care insurance and the peace of mind provided by asset protection.

Long Term Care University - Question of the Month

Long Term Care University - 10/15/09
Research
By Aaron Skloff, AIF, CFA, MBA

Q: Many of the long term care insurance brochures reference to the Total Pool of Money. Can you explain what that means and how it relates to a Daily or Monthly Benefit? Can a Total Pool of Money last longer than the Benefit Period?

The Problem – Understanding the Total Pool of Money
The Total Pool of Money, sometimes referred to as Total Benefit Value, is the total amount of money available to cover your long term care expenses on a daily or monthly basis. The Pool of Money is calculated by multiplying your Daily or Monthly Benefit by the Benefit Period. The value of the Total Pool of Money will be affected by claims payments, inflation protection and additions from the passing of a spouse or partner (if you have a Shared Care policy). For example, if you selected a Daily Benefit of $300 and a Benefit Period of five years, your Total Pool of Money would be $547,500.

Daily Benefit X Day Per Year X Benefit Period = Total Pool of Money
$300 X 365 X 5 Years = $547,500

Making Your Actual Benefit Period Last Longer than Your Stated Benefit Period
Your Daily Benefit can be thought of as your daily withdrawal limit from your Automated Teller Machine (A.T.M.). Although your balance is $547,500, the daily withdrawal limit is $300. Try to withdrawal more than $300 in a day and the A.T.M. will tell you that you have reached your daily limit. With your long term care insurance policy, request reimbursement in excess of your Daily Benefit and the insurance company will tell you that you have reached your daily limit.

Your Actual Benefit Period is determined by how quickly you incur Actual Long Term Care Expenses, within the Daily Benefit limit. Divide your Daily Benefit by your Actual Long Term Care Expenses and then multiply by the policy Benefit Period to determine your Actual Benefit Period. For example, if you only accumulate $150 of Long Term Care (LTC) Expenses per day, or half the $300 Daily Benefit, your Total Pool of Money remains the same while your Actual Benefit Period will be 10 years.

Daily Benefit / Actual LTC Expenses X Benefit Period = Actual Benefit Period
$300 / $150 X 5 Years = 10 Years

Your Actual Benefit Period Could Last Shorter than Your Stated Benefit Period
Some long term care insurance companies allow you to increase your Daily Benefit for Home Care. The formula for determining you Actual Benefit Period is the same as in the previous example. For example, if you selected a 150% Home Care benefit, that reimburses 150% of the Daily Limit for Long Term Care expenses incurred in your home and your Actual LTC Expenses are $450 per day, your Total Pool of Money remains the same while your Actual Benefit Period will be 3.33 Years.

Daily Benefit / Actual LTC Expenses X Benefit Period = Actual Benefit Period
$300 / $450 X 5 Years = 3.33 Years

Action Step –Understand How Your Total Pool of Money and Actual Benefit Period Relate to One Another
Your policy design will determine your Daily Benefit, Benefit Period and Total Pool of Money, while your Actual Expenses will determine your Actual Benefit Period.

Long Term Care University - Question of the Month

Long Term Care University - 09/15/09
Research
By Aaron Skloff, AIF, CFA, MBA

Q: Some of the long term care insurance policies I am researching allow for inflation protection. Can you explain what that means and what advantages it may provide?

The Problem – The Rising Cost of Long Term Care
At approximately $220 per day, the average cost for a one year stay in a private nursing home room in 2008 was approximately $80,000. With the average nursing home stay lasting approximately three years, you could spend over $252,000 if you entered in a nursing home today.

If you are 55 years old today, you should expect to pay approximately $930 for one day or $340,000 for one year of nursing home care when you are likely to need it 25 years from now at the age of 80. Based on the average nursing home stay, expect to pay approximately $1.1 million per person — easily wiping out a lifetime of savings for many families.

The Solution –Inflation Protection
A long term care insurance policy with inflation protection, sometimes called an increase rider, increases your benefits each year. A long term care insurance policy without inflation decreases in value, on an inflation adjusted basis, every year the cost of long term care increases. Differentiating between the two most common forms of inflation protection is critical in determining which type is best for your needs.

Simple Inflation Protection
With simple inflation protection, your policy benefits increase at a fixed percentage of your original daily benefit. As evidenced by the chart to the right, a 5% simple inflation protection policy will increase a $220 per day or $80,000 per year benefit to $495 per day or $180,000 per year, over the over the course of 25 years. This should cover about 53% of your daily or annual nursing home costs.

Compound Inflation Protection
With compound inflation protection, your policy benefits increase at a significantly faster pace, as each year’s benefit increase compounds upon the previous year’s increase. As evidenced by the chart to the right, a 5% compound inflation protection policy will increase a $220 per day or $80,000 per year benefit to approximately $930 per day or $340,000 per year, over the course of 25 years. This should cover about 80% of your daily or annual nursing home costs.

No Inflation Protection
As you approach your 80th birthday, the cost to add inflation protection can become expensive. You may consider forgoing inflation protection and simply obtaining a policy with a daily benefit greater than the current cost of care in the marketplace.

Action Step – Protect Yourself with Inflation Protection
When you purchase a long term care insurance policy with inflation protection you protect yourself from the rising cost of long term care. Be sure your policy benefits increase as the cost of long term care increases or be prepared to spend significantly more out of your own pocket.

Long Term Care University - Question of the Month

Long Term Care University - 08/15/09
Research
By Aaron Skloff, AIF, CFA, MBA

Q: Some of the long term care insurance policies I am researching allow for a shared care benefit. Can you explain what that means and what advantages it may provide?

The Problem – You or Your Partner Need More Care than Your Individual Policy Covers
Most long term care insurance policies are designed as individual policies that insure one person, ignoring the pool of benefits inside your spouse’s or partner’s policy. Unfortunately, you may need more care than your individual policy covers.

For example, you and your spouse or partner each have a long term care (LTC) insurance policy with a $300 daily benefit and a five year benefit period, obligating the insurance company to pay $300 per day for five years. If you only need $150 worth of care, or half the $300 daily benefit, the insurance company is obligated to pay $150 per day for 10 years, or twice as long.

If you need the full $300 worth of care, or the full daily benefit, you will exhaust the policy benefits in five years. Unfortunately, you may need more than five years of care. In the event you need an additional two years of care at $300 per day, it will cost you $219,000 out of pocket. This example ignores the income taxes and early withdrawal penalties associated with the withdrawal of many retirement assets. It also ignores the devastating effects of inflation, which can wreak havoc on a lifetime of savings if your LTC insurance policy does not have inflation protection.

The Solution – Shared Care Benefit Policy
The shared benefit policy provides you the ability to utilize your spouse’s or partner’s benefits when your own policy benefits have been exhausted. In the example above, you can use the benefits of your spouse’s or partner’s policy and avoid a $219,000 expenditure. The mere avoidance of this expenditure can mean the difference between a secure and an insecure retirement.

All those assumptions are based on current dollars. If this example were 28 years in the future and the cost of care (along with your policy’s inflation protection) rose at 5% per year, the shared benefit policy would save you over $876,000 in expenditures.

Shared Benefit Policy with Survivor Benefits
Some policies have a provision to protect the surviving spouse or partner. If one of you dies, the survivor’s benefits will increase by the deceased spouse’s or partner’s remaining benefit dollars. For example, if you each have a policy that covers $300 per day for five years and one of you die, the survivor will now have a policy that covers $300 per day for 10 years – doubling the benefit period.

Shared Benefit Policy with Replenish Provision
Some polices have a provision to protect the spouse or partner whose policy has been depleted by the person receiving care. Once your spouse or partner has depleted your benefits, you have the option to purchase a new policy without medical underwriting.

Imagine your spouse or partner depletes their own policy and then depletes your policy. Unfortunately, you now suffer from a number of health conditions. With the replenish provision you can purchase a new LTC policy without any medical underwriting whatsoever. Despite the deterioration in your health the insurance company is legally obligated to issue you a new policy based on your original health – even if your current health would normally qualify you under a poor health rating or entirely disqualify your from obtaining a policy.

Action Step – Protect Yourself with a Shared Benefit Policy
When you purchase a shared benefit LTC policy with survivor benefits you protect yourself and your spouse or partner from greater than expected expenses and avoid the risk of seeing a deceased spouse’s or partner’s unused benefits evaporate.

Long Term Care University - Question of the Month

Long Term Care University - 07/15/09
Research
By Aaron Skloff, AIF, CFA, MBA

Q: Some insurance companies offer Partnership Qualified long term care insurance policies. Can you explain what that means, what advantages it may provide and if the New York State Partnership for Long Term Care is unique?

Let’s say you are a New Jersey resident who purchases $306,600 (the average rate of a private nursing room for an average three year stay in NJ in 2008) worth of insurance through a Partnership Qualified policy. When the care is needed, the policy actually pays for $900,000 of care (due to inflation protection). Under the state’s Partnership Program you would then have $900,000 of assets protected from NJ Medicaid.

The New York State Partnership for Long Term Care
Only two states in the entire U.S. can offer both Dollar for Dollar and Total Asset Partnership Programs – Indiana and New York. As its name implies, Total Asset offers unlimited asset protection from Medicaid – far more powerful than Dollar for Dollar.

Let’s say you are a New York resident who purchases a New York State Partnership for Long Term Care Qualified policy. After you exhaust your policy, you can apply for New York State Medicaid Extended Coverage – which allows you to protect some or all of your assets, depending on whether you select a Dollar for Dollar Asset Protection plan or a Total Asset Protection plan. However, your income is considered in determining your eligibility for Medicaid Extended Coverage. The plans are as follows:

Long Term Care University - Question of the Month

Long Term Care University - 06/15/09
Research
By Aaron Skloff, AIF, CFA, MBA

Q: Some of the long term care insurance policies I am researching allow for an indemnity benefit. Can you explain what that means and what advantages it may provide?

The Problem – Reimbursement Only Policies
Most long term care insurance policies are designed as reimbursement only. With a reimbursement only policy, upon submitting all of your receipts for long term care expenses the insurance company will reimburse you up to your policy’s limits. Unfortunately, you may have ancillary expenses associated with your long term care, including expenses to:
1. add ramps and expand doorways throughout your home
2. add additional railings to your staircases or add wheelchair lifts
3. purchase or lease a van with a lift to get to and from your physician’s office

The Solution – Indemnity Policies
Unlike reimbursement only policies, indemnity policies pay benefits above and beyond your actual long term care expenses. There are two basic types of indemnity policies, full and partial.

Full Indemnity Policy
With a full indemnity policy (sometimes called a flexible cash benefit or cash model), once you simply require long term care the insurance company pays you a monthly benefit. You receive these payments regardless of your actual expenses. Imagine your policy provides a $6,000 monthly benefit. Regardless of the amount or cost of your care, the insurance company will pay you $6,000 a month. You can pay an unlicensed family member or friend to care for you. You can payoff your mortgage. You can invest in your grandchild’s college fund. You can spend, save or invest the money however you choose.

Partial Indemnity Policy
With a partial indemnity policy (sometimes called a cash benefit or monthly indemnity benefit), once you actually receive at least one hour of long term care per day you receive a daily benefit. You receive these payments regardless of your actual expenses. Imagine your policy provides a $200 daily benefit. Regardless of the cost of your care, the insurance company will pay you $200 a day. You can spend, save or invest the money however you choose.

Getting the Most Out of Your Policy
Both full and partial indemnity polices address an underlying concern that you may have when you purchase a policy – you want the policy’s maximum benefit regardless of your actual expenses. With both types of polices the concern is eliminated.

Action Step – Protect Yourself with an Indemnity Policy
When you purchase an indemnity policy you protect yourself from unexpected expenses and gain the flexibility to spend, save or invest your money how you see fit.

Long Term Care University - Question of the Month

Long Term Care University - 05/15/09
Research
By Aaron Skloff, AIF, CFA, MBA

Q: Many of the long term care insurance policies I am researching require me to make permanent choices about the policy benefits. Are there any types of policies that allow me to change my policy benefits in the future?

The Problem – Inflexible Policies
Most long term care insurance policies require you to make permanent decisions about the benefits of your policy upon purchasing the policy. This presents a host of problems, including:
1. insufficient coverage for the future if you chose coverage that is too modest
2. unmanageable premiums today if you choose higher coverage than you can afford
3. inability to change policy benefits and features if your health deteriorates

The Solution – Flexible Policies
Some long term care insurance policies allow you to make changes to your policy after the policy has been purchased. This can be a tremendous benefit if you are interested in obtaining a policy today, but are working within a budget.

Some insurance companies offer flexible policies that allow you to increase your coverage without additional underwriting. Imagine you purchase your policy when you are 55 years old and are in perfect health. After 10 years, you are now 65 years old, are interested in increasing your coverage, but now you suffer from a number of health conditions. A flexible policy would allow you to increase your benefit without any medical underwriting whatsoever. Despite the deterioration in your health the insurance company is legally obligated to increase your coverage upon your request.

Pay close attention to what conditions are associated with your flexibility options. Some insurance companies will allow you to exercise changes throughout the life of the policy. Others will discontinue your ability to make changes if your decline the option to change two times in a row.

Some insurance companies allow you to enhance you coverage as follows:
1. increase your daily benefit based on inflation
2. increase your benefit period
3. decrease your elimination period

Pay close attention to how the insurance company prices their flexible policy. Ideally, you should only pay for the additional benefits you add to the policy, while the premium for the initial coverage purchased at the inception of the policy remains unchanged. In the example above, you are able to save money during the first 10 years of the policy and are then able to enhance your coverage at a more affordable price than most long term care insurance polices would offer.

Action Step – Do Your Research
Before purchasing a policy, be sure to research the features of your policy. Understanding if your policy is a flexible or inflexible policy before you purchase it can avoid unnecessary aggravation and financial hardship in the future.

Question of the Month: How Long Term Care Insurance Program Works

The Independent Press - 01/07/09
Money Matters
By Aaron Skloff

Q: Can you explain how the recently introduced New Jersey Long Term Care Insurance Partnership Program works?

About half the population who will reach the age of 65 are expected to enter a nursing home at least once in their lifetime. A 55 year-old New Jersey (NJ) resident is expected to pay over $300,000 for one year of nursing home care when they are likely to need it at the age of 80. Based on the average nursing home stay, total costs are expected to reach $1.5 million per person – easily wiping out a
lifetime of savings for many families.

The Deficit Reduction Act of 2005 radically changed the Medicaid playing field. The most important change was an extension of the look-back period for asset transfers to establish Medicaid’s eligibility for nursing home coverage from 3 to 5 years and changes the start of the penalty from the date of the transfer to the date of Medicaid eligibility. The second most important change was the lifting of the moratorium on states introducing new partnership programs to increase the role of private long term care insurance in financing long-term services.

The NJ Long Term Care Partnership Program (NJLTCPP) allows individuals to protect assets equal to the insurance benefits received from a Partnership Policy so that the assets will not be taken into account in determining financial eligibility for Medicaid. One of the key aspects of the policies is their requirement for inflation protection (minimum of 3%) in the policy for most individuals.

For example, a NJ resident purchases $102,200 (the average rate of a private room in NJ in 2008) worth of annual care through the policy. When the care is needed, the policy pays for $900,000 of care (due to inflation protection). Under the NJLTCPP, a person would then have $900,000 of assets protected from NJ Medicaid. This type of protection is commonly referred to as “dollar for dollar” asset protection.

Establishing LTC insurance immediately reduces the financial and psychological burdens that will ultimately plague most families when the need for long-term care arrives. With many states running large deficits, it is even more critical than ever to take advantage of any programs designed to protect your assets, before they review the legislation and discontinue the issues of new policies. Like most insurance, the earlier you start your policy, the lower your cost of the policy.

Note. Aaron Skloff, Accredited Investment Fiduciary (AIF), Chartered Financial Analyst (CFA), Master of Business Administration (MBA) is CEO of Skloff Financial Group, a Registered Investment Advisory firm based in Berkeley Heights, NJ. Phone: 908-464-3060.

New Jersey Long Term Care Costs Are High, So Plan

Princeton Business Journal - 02/06/2007
IT'S YOUR BUSINESS
Aaron Skloff

Q: Having lived and worked in New Jersey for over 30 years, my husband and I have built a healthy retirement nest egg. Our concern is one or both of us will ultimately need long-term care that could wipe out our savings. What are the issues regarding long-term care in New Jersey?

The Problem: The Cost of Long Term Health Care. About half the people reaching the age of 65 are expected to enter a nursing home at least once in their lifetime. A 55-year-old New Jersey resident today is expected to pay over $300,000 for one year of nursing home care when he or she is likely to need it 25 years from now at the age of 80. Based on the average nursing home stay, total costs are expected to reach $1.3 million per person — easily wiping out a lifetime of savings for many families. New Jersey's longterm care costs are among the highest in the country.

The Solution: Long Term Care Insurance. Just a quick background on long-term care (LTC) and long-term care insurance. Let's start with what conditions would fall into the category of LTC: a prolonged physical illness, a disability, or a cognitive impairment, such as Alzheimer's disease. The need for LTC is generally driven by the inability to perform one or more of the six activities of daily living: bathing, continence, dressing, eating, going to the toilet and transferring (getting out of bed). LTC insurance is designed to cover the expenses of long-term care.
Before we dig into LTC insurance policies, let's dispel two common myths about publicly provided LTC.

Myth No. 1: Medicare Covers LTC Costs. Unfortunately, Medicare covers very limited circumstances in facilities of Medicare's choice for a mere 100 days and may require the patient to pay a significant amount of coinsurance.

Myth No. 2: Medicaid Covers LTC Costs. Unfortunately, Medicaid covers long-term care in locations of Medicaid's choice for those who meet Medicaid's stringent financial requirements. Eligibility for Medicaid in New Jersey requires proof that the patient receives a very modest income and has insignificant assets beyond a limited amount of equity in the home. To avoid abuse, Medicaid eligibility includes a detailed review of a couple's combined assets and a five-year "lookback period" for spending down assets. Medicaid is designed to cover impoverished people.

LTC insurance provides financial protection from the exorbitant cost of long-term care. Most policies cover the cost of care in a nursing home, adult day care center, assisted living facility or your own home. Most policies will cover the cost of care from a licensed agency, independent licensed professional or an unlicensed caregiver. While many people would choose to receive care in their home, they shiver at the thought of receiving assistance in bathing or going to the toilet from a son, daughter or even a spouse. During this challenging period in someone's life, LTC insurance gives the patient control of where they will receive care and by whom. Long-term care insurance policies should be examined based on four key criteria:

1. The Elimination Period. This defines how long you will pay for your own care before the policy begins paying. The longer the elimination period, the lower the cost of the policy. A 90-day elimination period, which is common, could cut the policy price by 20 percent.

2. Daily Benefits. This defines how large a benefit will be paid. For example, a $300 daily benefit policy will pay approximately $110,000 per year.

3. Inflation Protection. This is a critical part of any policy. In order to keep up with the rising costs of LTC, most policies provide for 5 percent compounding of benefits. Without this compounding, your $300 daily benefit would not provide a great deal of coverage when you need it in the future.

4. Length of Coverage. Coverage lengths range from one year to an entire lifetime. A four-year length of coverage, which is common, could cut the policy price by 40 percent versus the cost of lifetime coverage.

There are advantages provided to couples that purchase LTC insurance from the same company. Many insurers provide sharedcare policies, providing a shared pool of benefits. Instead of having two policies that cover a five-year period, you wind up with 10 years of coverage that can be utilized by one or both of you. Lastly, many adult children have purchased LTC insurance for their parents and loved ones once they realize all the benefits it provides.

Action Step — Establish Long Term Care Insurance. Establishing LTC insurance immediately reduces the financial and psychological burdens that will ultimately plague most families when the need for long-term care arrives. Like most insurance, the earlier you start your policy the lower your cost of the policy.

Aaron Skloff is an accredited investment fiduciary, chartered financial analyst and holds a master's of business administration degree. He is the chief executive officer of Skloff Financial Group, a Berkeley Heights-based registered investment advisory firm. The firm specializes in financial planning and investment management services for high net worth individuals and benefits for small to middle-sized companies. He can be contacted at (908) 464-3060.