Question: Do I really need long-term-care (LTC) insurance? Doesn’t Medicare cover most of those costs?

Answer: Most people who have significant assets to protect and those who are serious about their quality and independence of living in retirement need LTC insurance. Medicare is a great government health insurance program but it provides very limited custodial-type benefits and is more focused on acute skilled care usually provided by doctors and hospitals. LTC happens to be mostly about custodial care — help with day-to-day activities such as dressing, bathing, eating, toileting, transferring (from bed to chair, for example) and maintaining continence. Medicare usually covers custodial costs during the first 100 days of your condition and that is very short term in nature, not long term.

Q: How much does long-term care typically cost?

A: We have a shortage in LTC service providers, including a shortage in beds available at nursing-home facilities, assisted-living facilities and other community-based settings. Because demand outstrips supply, the cost of LTC has gone up by about 6 percent per year over the last decade. According to the recent (October 2010) Market Survey of Long Term Care costs done by MetLife Mature Market Institute, the typical cost of Hawaii nursing homes will be around $10,920 a month; assisted-living facilities are around $4,223 and home health aid agencies charge about $22 per hour on average. As you can see, you could spend quite a bit of money on care relatively quickly, especially people who need around-the-clock care.

Q: What are the variations of long-term-care insurance coverage and how much are the premiums?

A: All LTC policies come with a wide array of benefits and features that you can choose from at the time of purchase and they all affect premiums. The choices include: benefit amount, how long benefits will be paid, the elimination period (or how long you must wait before benefits kick in) and inflation protection.

Premiums depend on many factors, and I can’t give you one premium that would apply to all clients and all companies. For the sake of an example, a rough premium estimate for a policy designed with a $200 daily benefit, three-year benefit period, 90 day elimination period and a 5 percent compound inflation protection feature would cost a healthy couple at 45 years of age (assuming they are the same age) around $2,500 annually plus or minus 20 percent depending on carrier, health rating etc. If you use the same coverage for the same couple at age 55, premium is likely to be in the $4,500 range and if they were 65, the premium would likely be in a $6,400 range. It is important to understand here that these are rough estimates as certain features and benefits that can be added to these policies can drastically change the premiums on these contracts.

Q: When do I qualify for benefits and how much will my insurance pay?

A: Assuming your application has been underwritten and approved, generally you qualify for payment under the plan if you cannot perform two out of the six activities of daily living, which are eating, bathing, dressing, toileting, getting up and continence (controlling bowels). You also qualify if you have a cognitive impairment. How much your insurance will pay depends on what type of coverage you selected. You can buy insurance, for example, to cover all your expenses for your lifetime, but the premium will be higher than a policy that covers $200 a day for three years.

Q: How can I be sure the company I buy insurance from will be around to pay my bills in 20 years when I need them? Haven’t a lot of large financial companies gone bust recently?

A: Financial strength of the company is an important factor when evaluating LTC coverage. Certain people buy their policies in their early 40s and may use them for the first time 40 years from today. Therefore you need to make sure that the company you choose has a sound financial track record.

The LTC insurance industry is very young. The first policies hit the market about 30 years ago. Many companies did not properly price the product or had inaccurate projections and ran into financial trouble, however those companies usually got overtaken by other bigger and stronger competitors who still honor the existing policies. Because of the limited experience, all LTC insurance policies do not guarantee level premiums. The companies reserve the right to increase the premiums on existing policy holders and many have done so. This is another reason why you want to place a high priority on company strength and their ability to honor their claims. What this also means to potential clients is that they have to understand that buying the cheapest coverage at the time of purchase does not necessarily mean that it will turn out to be the cheapest over the life of the contract.

Interviewed by David Butts. "Akamai Money" seeks out local experts to answer questions about business in Hawaii. If you have an issue you would like us to tackle, please email it to business@staradvertiser.com and put "Akamai Money" in the subject line.