A small business owner needs to carry various types of property insurance, and among the choices is a newer form of coverage.
Long-term care insurance pays for nursing home costs, thus it is a type of property insurance. Here, the insurance is protecting the property you own from nursing home costs.
Medicare, which is part of the Social Security system, pays only for the first 100 days of nursing home care. After this period expires, the individual must personally pay the cost of the nursing home or qualify for Medicaid, which is a government entitlement program available only to persons who have extremely limited resources.
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Qualifying for Medicaid is extremely complex, especially for individuals who are not indigent. Planning strategies may have to be not only implemented but completed several years prior to the point when you actually may need long-term care (see our discussion of transferring assets to qualify for Medicaid). Be sure to consult with one of the many professionals who specialize in this area if you are looking to have Medicaid provide for your long-term care needs.
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So with nursing home costs averaging about $70,000 per year, long-term care insurance seems, at first glance, to be a sound choice. Such high costs per year can quickly deplete a family's resources. Even the family home, in some instances, may have to be sold to pay for the costs of the nursing home.
However, many advisors recommend against purchasing long-term care insurance. Simply put, premiums for long-term care insurance can be extreme. Despite government efforts at marketing this type of insurance, it has not proved popular, probably due the premium cost.
Long-term care insurance is fairly new. It is possible that premium cost will be reduced, especially if demand continues to be lackluster. However, it is likely that premiums will always be significant, simply because of the extreme costs that the insurance covers.
Other asset protection strategies, including asset transfers, can provide effective protection, but without the premium cost. Although the transferor must give up title to the assets transferred to family members, the transfers are cost-free to the family. Further, in certain instances, assets simply are exempt and need not be transferred to gain protection.
The small business owner should investigate the cost of long-term care insurance and compare other strategies to the cost of long-term care insurance. The premium cost must be weighed against the possible benefits.
Further, it must be considered that after paying very substantial premiums for long-term care insurance, a policyholder may very well never have to take advantage of the policy. In short, long-term care insurance may represent (at this time anyway) one instance where the small business owner may want to rely on other asset protection strategies rather than purchase insurance.