Determining the Long-Term Care Coverage You Need

QHow long is the average stay at a nursing home and at an assisted-living facility? That information would help me determine how much risk to take in my investments and how much insurance coverage I'll need.

AThat's a great question. The answer can help you decide whether you need long-term care insurance and, if so, how much coverage to get. It can also help you figure out good strategies for minimizing your premiums.

The average stay for nursing-home residents is 28 months, and the average stay for assisted-living residents is 27 months.

But many of those people receive some other kind of long-term care before or after their stay. About 40 percent of residents in assisted-living facilities came from an acute-care hospital or a short-stay nursing facility, according to the American Association for Long-Term Care Insurance. Also, about 33.5 percent of assisted-living-facility residents move to a nursing home after they leave the facility, and many nursing-home residents received care in their own home first. On average, a 65-year-old today will need some form of long-term care services for three years, according to the National Clearinghouse for Long-Term Care Information.

Because of these statistics, I usually recommend that people consider buying a long-term care policy that provides three years of coverage. You may want a longer benefit period if you have a family history of long-lasting conditions, such as Alzheimer's disease (about one-third of today's 65-year-olds never need long-term care services, but 20 percent of today's 65-year-olds are likely to need care for more than five years). The longer the benefit period, the higher the premiums -- lifetime benefits can cost more than double the premiums for a three-year benefit period.

You'll have the most flexibility if you buy a policy with benefits that are "short and fat" rather than "long and lean." If you buy a short-and-fat policy with a $200 daily benefit and three-year benefit period, for example, you're actually buying a pool of $219,000 for care. You can't use more than $200 per day, but if you use less, then you can extend your coverage for well beyond three years.

If you buy a long-and-lean policy with a $100 daily benefit and six-year benefit period, on the other hand, the policy won't pay out more than $100 per day. If your care costs $150 per day, you'll end up paying $50 out of pocket for every day of care.