(Word count = 816 plus 67 words for About the Author)

The large majority of people who are over 50 years old should have long-term care insurance.  It is perhaps the most important financial decision of their lives, yet too often overlooked.  Many of you, my readers and clients, have asked me to summarize the main steps to evaluating whether to get a long-term care policy and then the steps for choosing the one that is right for you. Thus, this column.

A. Summary of steps.

When making an important decision, it helps to break it down into steps, such as the following:

(#1) - Determine your process for decision-making. Are you using a financial advisor (e.g. financial planner, CPA,  insurance agent, etc.)? If so, who will it be? Does he or she have access to experienced general agents to get key info? Input from relatives such as spouse, children, parents? Expectations?  How detailed do you want to get?

(#2) - Determine your need for long-term care insurance in the context of your health, your finances, your family relationships, and your risk tolerance level, etc.)

(#3) - Gather the appropriate information, such as financial info about you, quotes on different policies,  what-if scenarios, etc.

(#4) - Compare policies and required adjustments to finances.

(#5) - Choose the policy that is right for you and adjust finances if necessary.

B. - Do you need it? - You probably do need long-term care insurance. In my opinion, only if you meet all the following 3 criteria could you make an argument that you don't need long-term care insurance.

(#1) - You are in excellent health and have an excellent chance of not needing long-term care (e.g. great family health history, not accident-prone).

(#2) - You have significant wealth and you are willing to bear the financial cost of a long-term care disability.  Ask yourself whether you can withstand a loss of about $300,000 without affecting financial stability or cash flow or whether you have no assets and such long-term care costs will be fully borne by another party. (e.g. Medicaid, welfare, wealthy children or parents).

(#3) - You can emotionally handle both (a) living without sufficient protection against a long-term care disability or (b) living in the aftermath of a long-term disability without sufficient protection, including the effects on other family members. This is credible if you have demonstrated in your past that you (1) have taken financial risks such as aggressive investing, not carrying certain insurances, being in risky business ventures, etc. and (2) have lived through severely upsetting times, financial wise and health wise.

C. Key elements of a long-term care policy affecting choice.

Evaluate the policy by reviewing the features and benefits, including the following:

(#1) - Indemnity vs. cost reimbursement; professional vs. unlicensed providers.

(#2) - Coverage for nursing homes, home-care, and assisted-living facility.

(#3) - Coverage variables – Daily benefit, time period of benefits (e.g.  lifetime, 6 years, 3 years, etc.), elimination period, inflation protection.

(#4) - Personal policies vs. group plans.

(#5) - Miscellaneous provisions (e.g. definition of disability, Alzheimer’s disease and other organic brain disorders, mental and nervous conditions, discounts for spouse, account with financial service institution, respite care, tax aspects, bed reservations, daily vs. weekly and monthly benefits, pool concepts, etc.

D. Examples of restructuring cash flow and investments to enable premium payments.

 Don't despair if you feel you don't have enough current income to pay the premiums.  Here are some alternative strategies:

(#1) - Increase investment income.  You may be able to do this via higher-yielding certificates of deposit,  taxable bonds or tax-free bonds, transfer deferred annuities to higher-rate annuities.

 (#2) - Reallocate investments to get more cash flow. Perhaps you should take more income from investments such as a higher payout from annuities; annuitize certain annuities, immediate annuities for other investments, protect equity investments via principal-protected investments and spend more of principal, shift unearning investments to earning investments, etc.

 (#3) - Cut certain expenses. Some examples to reduce gift giving, income taxes, real estate taxes, excessive consumer spending, reduce life insurance premiums.

 (#4) - Miscellaneous - Consider family pooling of cash to pay premiums, sale of rental properties, sale of underperforming assets, gifts from family members, etc.

 E. Tax issues.

Long-term care insurance premiums are deductible by individuals in certain cases (e.g. within the annual limits; subject to the 7.5%-of-AGI- threshold limitation reportable as an itemized deduction on Schedule A of Form 1040).  There are fewer restrictions for self-employed individuals.  You should consult your tax advisor for the rules that relate to you and your circumstances.  The lack of tax deductibility should not prevent you from deciding to get a policy, yet be sure to get all the tax deductions to which you may be entitled.  Generally, if you receive benefits under the policy, those benefits are not subject to income tax, up to certain limits if the policy sets a dollar amount (e.g. $240 per day for 2005 was tax free).

About the author.

Frank Sisco is a CPA and Personal Financial Specialist, and author of many articles about personal finance and issues of life and money.   His firm, Financial Management Corporation, is located in New Rochelle, NY.  Frank makes his home with his wife and daughter in New Rochelle, NY.  He can be reached at 914.740.4422 or by email at ideasmoney@aol.com.  Visit his website at www.LifeAndMoney.com, which contains this and prior articles.