Are you concerned about coping with an extended illness or disability as you get older? Since Medicare doesn't pay for long-term care, you may be wondering if private insurance is your best option. Here we tell you why this type of policy is not right for everyone.

The good news is that people are living longer. The dark side of this fact is that many people fear they won't have the money to pay for extended medical care and/or their families won't be able to take care of them. Long-term care insurance is a fairly new type of coverage designed to pay for long-term care services, which can drain a tidy nest egg very quickly.

The cost for nursing home care, home care and adult day center care varies from one part of the country to another. In 1996, the average cost of care in a nursing home ranged from about $46,000 to over $60,000. Home care costs range from $50 to $200 a day, depending on the type of care provided and the number of hours of care each day, and the cost for adult day services range from about $30 to $130 per day. With figures like these, paying an annual premium for insurance to cover possible long-term care bills may sound like a great idea. However, long-term care insurance costs a pretty penny itself and simply doesn't make financial sense for most people. Here are some basics to help you decide if you are a good candidate for this type of policy.

What Is Long-Term Care?

Many people live to a healthy ripe old age and remain perfectly independent. But it's impossible to predict who will have that kind of luck and who will be hit with an illness or disability that will require some kind of on-going help. Depending on the situation, long-term care may involve aid with activities at home, such as bathing and dressing; home health care; or skilled nursing care in a nursing home. Long-term care is provided by home care agencies, senior centers, adult day care centers, traditional nursing homes and continuing care retirement communities. Families often provide long-term care as well. Below is an explanation of the three major types of long-term care.

Skilled nursing care is needed for medical conditions that require care by skilled medical personnel such as registered nurses or professional therapists. This care is usually needed 24 hours a day and is ordered by a physician who outlines a treatment plan. Some people need skilled care for a short time after an acute illness, while others require it for longer periods. Skilled care is usually provided in nursing homes but visiting nurses or therapists may also give it in a person's home.

Intermediate nursing care is needed for stable conditions that require daily, but not 24-hour nursing supervision. Such care is ordered by a physician and supervised by registered nurses. Intermediate care is less specialized than skilled nursing care and often involves more personal care. It is generally needed for a long period of time.

Custodial care helps a person with chores or activities of daily living, which may include bathing, eating, dressing, and other routine tasks. Custodial care, sometimes called personal care, is less complicated than skilled or intermediate care and can be given in a variety of settings (at home, adult day care centers, or nursing homes) by people without medical training.

Who Usually Pays for Long-Term Care?

Individuals and their families pay one-third of all nursing home expenses. To do this, they may use savings or sell assets such as their homes. State Medicaid programs pay for almost half of all nursing home care. You cannot count on Medicare, Medicare supplemental insurance, or Medigap for long-term care. For example, Medicare beneficiaries who meet strict eligibility criteria are covered for 100 days of skilled nursing home care and must pay a hefty co-payment after the 20th day. Though Medicare may pay for some at-home assistance for beneficiaries who meet certain conditions, the program does not cover custodial or intermediate care or prolonged home health care. And Medicare supplemental insurance, or Medigap, does not cover long-term care either. Of the standardized Medicare supplement policies, Plans D, G, I and J contain an at-home recovery benefit that may pay up to $1,600 per year for short-term assistance with daily activities, but only for those recovering from an illness, injury or surgery.

Who Should Buy Long-Term Care Insurance?

Long-term care insurance might be a reasonable option if you have considerable assets that you want to protect so that you can leave an estate for your family. Or if leaving an estate is not your goal, you may simply feel you can afford to buy good long-term care insurance and still maintain a comfortable lifestyle.

The main reason people buy private insurance is to avoid being financially wiped out by long-term care costs. But impoverishment is exactly what you may face with a long-term insurance policy because:

• The premiums are high
• You may have to pay for premium increases
• You may have to pay for certain expenses out-of-pocket
• If you let your policy lapse and don't have nonforfeiture protection (which, of course, costs more) your will lose your benefits

Long-term care insurance is really a gamble on your health. The bet can pay off, but it's more likely you'll pay those premiums year after year and never need the coverage. It's true that nursing home costs are staggering, but what is your chance of winding up in one? Though studies show that a 65 year-old's chance of being in a nursing home at some point range from 20 percent to 50 percent, experts point out that those figures sound worse than they actually are because they reflect even short-term stays. According to research published in the New England Journal of Medicine in 1991, 2 out of 3 people who turned 65 in 1990 will either never go to a nursing home or will spend less than three months in one.

A long-term care policy should not put a crimp in your lifestyle by causing financial hardship. Here are some factors to help you determine if you may need long-term care insurance:

• Your health background. Your family has a history of chronic illness, such as cardiovascular disease, diabetes or Alzheimer's, a policy might make sense--especially if close relatives have fallen ill early (in their sixties as opposed to their nineties).
• Your family situation. You have no relatives who could take care of you at home. (Before you decide this is the case, discuss the possibilities with your family.)
• Your financial situation. According to the United Seniors Health Cooperative, a non-profit organization based in Washington DC, people should not consider long-term care insurance unless they have at least: $75,000 (excluding home and car); an annual retirement income of at least $35,000 (depending on costs in the state where you live); the ability to pay premiums without making any lifestyle changes; and the ability to afford the policy even if premiums increase during your lifetime. If you don't fit this profile, you would be better off letting your money earn interest, paying for care as the need arises, and relying on Medicaid if long-term care becomes necessary (see sidebar). Even if you do fit the above profile, be sure to consult a financial adviser, life or health insurance counselor, or an attorney who specializes in estate planning or elder law about all your options.

How Does Long-Term Care Insurance Work?

Long-term care insurance policies are not standardized, so the services covered by different companies vary greatly. Each policy has its own eligibility requirements, restrictions, costs and benefits. Services generally covered include: nursing home care (skilled, intermediate and custodial), care in your own home and in adult day care centers, assisted living, personal care, hospice care, and care for people with cognitive disorders like Alzheimer's disease. Services generally excluded include: psychological disorders, such as anxiety or depression, alcohol or drug addiction, illness or injury caused by war, attempted suicide or intentional, self-inflicted injuries.

Insurance companies also offer policy holders a choice of daily benefits (how much the company will pay per day for care). This usually ranges from $40 to $250 a day for care in nursing homes. To decide what you need, it is important to know how much nursing facilities in your area charge. Home care benefits are usually one-half of that for nursing home care and only pay up to a fixed amount per hour of service. For example, $60 a day or $20 per hour. Keep in mind that your policy usually does not pay for your needs in full, so you will have to pay the balance out of your own pocket.

In addition to the daily benefit, you will have to choose a benefit period, meaning how long you want the insurance company to pay your long-term care bills. Benefit periods may run one, two, four, six, ten years or, sometimes, for the rest of your life. Naturally the higher the daily benefit and the longer the benefit period, the more expensive the policy is.

You Are Your Own Best Protection

Every long-term care insurance policy is different, so it is crucial to read the fine print before you sign on the dotted line. Here are some questions to ask about any policy you may be considering:

• What conditions must be met in order to collect benefits? For example, some policies require prior hospitalization before coverage for long-term care services.
• Does it pay for any type of nursing home costs or just the costs of nursing homes that provide skilled care?
• When will it pay for custodial home care or hospice care?
• What types of facilities are covered? Some policies will only pay for care in facilities that meet their definitions of skilled, intermediate, or custodial care.
• Are there built-in benefit increases to allow for inflation or is the benefit amount pre-fixed?
• Are there provisions that would provide some coverage should your policy lapse in future years?
• Are expenses outside your local area covered?
• What is specifically excluded from coverage?
• Will your premiums go up as you get older?
• Will you have to continue paying premiums if you go into a nursing home?
• Is the policy guaranteed renewable? Such a provision means that the policy cannot be canceled by the company for any reason except nonpayment of premiums.
• It is also important to research the background of the company providing the policy. Find out how long they've been in business and check with the Better Business Bureau to see if any complaints have been registered.

When to Say No

The American Association of Retired Persons (AARP) has put together a list of absolute don'ts you should keep in mind when deciding which long-term care policy to purchase:
Don't ever sign a policy if the insurer has the sole option of canceling the policy (make sure it has a guaranteed renewable provision).

• Don't sign a policy that has a provision you don't understand.
• Don't buy a policy you can just barely afford; chances are the premium will be raised.
• Don't buy any policy if your income is such that you will spend down your assets to qualify for Medicaid benefits within six months of needing care (see sidebar).
• Don't buy a policy that pays home care or custodial benefits only after skilled care is given first.
• Don't buy a policy that covers only skilled nursing care.
• Don't buy a policy that covers only care received in a Medicare-certified nursing home unless there are several of these in your area.