The Basics

Find out if long-term-care coverage is right for you.

LONG-TERM-CARE INSURANCE IS a fairly recent phenomenon. Though the first policies were written in the 1970s, it didn't really enter the mainstream until the late 1980s, when the National Association of Insurance Commissioners issued a model for state regulation. From 1987 through 2002, nearly 9.2 million policies were sold, of which about 6.5 million are estimated to still be in force. In 2002 (the most recent statistics available), more than 900,000 new policies were purchased, according to America's Health Insurance Plans, a trade group. That number will surely ratchet up as already graying baby boomers grow older.

What's Available?
Most policies cover the costs of traditional long-term care offered in a facility or at home, and Phyllis Shelton, author of "Long-Term Care: Your Financial Planning Guide," says some new policies offer coverage for care provided by informal caregivers such as friends or family members. Usually, you sign up for a daily or monthly benefit to be delivered over a predetermined number of years. A policy could offer reimbursements of up to, say, $150 a day for up to three years. (If daily costs are less than that amount, the total duration of the policy is typically extended.) The priciest policies offer lifetime benefits.

When Does It Kick In?
Benefits are typically triggered when a person can no longer handle at least two of the so-called activities of daily living -- bathing, dressing, eating, moving back and forth from a chair to a bed, using the bathroom and remaining continent -- and the condition is expected to last for at least 90 days. Most policies also pay out if a person has cognitive impairment stemming from, say, advancing Alzheimer's disease or severe dementia. Note, however, that not all cognitive and physical impairments that might affect activities of daily living are long term. In fact, while the insurance industry likes to play up the fact that the average nursing home stay is 2.4 years, as many as 68% of those age 65 and older who are discharged from nursing homes in a given year spend less than 90 days there. Unless they are expected to receive long-term care elsewhere, the nursing home stay isn't covered.

Prepare to Pay
Long-term care is expensive. Today the average cost for one year in an assisted-living facility is $30,288, while home health care runs an average of $18 per hour, according to MetLife's Mature Market Institute, the company's research and policy resource center for aging issues. One year in a private room at a nursing home will set you back an average of $70,080. And in high-cost areas, those figures could be greater. In San Francisco, for example, a year's stay costs an average of nearly $107,000.

What About Medicare?
Some people assume that the government will pick up the tab. But Medicare covers only nursing home stays of up to 100 days, and only if skilled nursing, such as administering intravenous drugs, is required. Additionally, a patient must also spend at least three days in a hospital before entering a nursing home to qualify. And even then only the first 20 days are fully covered; a daily copayment of $114 (in 2005) is charged for days 21 through 100.