FAMILY FINANCES / ROBERT A. ROSENBLATT : Nursing Your Assets : If You Need Long-Term-Care Insurance--and Not Everyone Does--Shop Around

It’s the nightmare for every aging couple and their grown children: Momma falls, breaks a hip and goes into a nursing home. The tab: $3,500 a month. It can deplete a lifetime of savings in a fearfully short time.

There is no way to guarantee against a broken hip, but the financial disaster of a prolonged stay in a nursing home can be eased with long-term-care insurance.

Who needs it? The short answer is people over the age of 60 with fair-size but not huge financial assets.

For the poor elderly, those over 65 with a few thousand dollars or less in the bank, Medicaid--the federal health-care program for the poor--will pay nursing home bills. A spouse can keep about $80,000 in liquid assets (a house doesn’t count), but if there is no spouse, the asset limit is just $2,000.

The more affluent--those households with assets of about $500,000 or more--may not really need insurance because they can cover the cost of a nursing home stay out of income generated by their savings.

Those in between are more likely candidates for coverage.

For this group, nursing home insurance is, in effect, an asset protection plan, a tool to keep an estate from disappearing while paying the costly bills of nursing homes--instead of “spending down” assets until the person is eligible for Medicaid. The insurance can allow money to remain after death for a favorite charity or inheritances.

Another reason to buy insurance is that it might provide more options than Medicaid, which has fairly rigid rules about what it covers and often can’t help the infirm elderly stay at home.

What is the risk of needing help? Figures for in-house care are hard to come by, but an American has a 40% chance of spending some time in a nursing home after the age of 65. The odds rise rapidly with age: Only 1% of the population between 65 and 74 is in a nursing home, but the figure rises to 3% through age 84. After age 85, at least 25% of the population spends time in such a facility.

If you decide to buy the insurance, you can’t wait until you need it. You must already be in good health. Some observers suggest buying it near retirement.

“The people for whom it makes the most sense are 63 to 73,” said James Firman, president of the National Council on the Aging. Policy prices range from $1,000 a year at age 63 to about $2,500 at 73.

Buying insurance earlier, in your 30s or 40s, allows you to have coverage even if you later develop a medical condition that might make you uninsurable. But although the cost is lower, it is still significant over the decades you are most likely to be paying for it.

If you buy insurance today and don’t expect to use it for 15 or 20 years, inflation is a vital consideration: Nursing home costs have risen at the rate of 8% to 9% a year. Experts say you should buy a policy that offers an automatic increase in the value of benefits. And buy from a company that has been given a top grade from one of the insurance rating services, such as A.M. Best Co.

“The three most important things to consider are the company, the company and the company,” Firman said. “You are betting that 20 or 30 years from now, this organization you are paying money to will be sound and will be there.”

Evaluate the benefits closely.

Many of the early policies required a hospital stay before benefits would begin, which was unfair to the many people who entered nursing facilities directly from their homes. The old policies also excluded Alzheimer’s disease, an affliction that probably accounts for a third or more of the nursing home population.

More policies now cover Alzheimer’s and don’t require initial hospitalization.

“The basic story is that the quality of the products has improved dramatically in the past 10 years,” said Joshua M. Weiner, an expert on long-term-care issues and a senior fellow at the Brookings Institution.

A good policy provides home-care benefits. If the nursing home payment is $100 a day, for example, the policy might provide $50 a day for a client who remains at home.

Home-care benefits should be wide-ranging, including everything from a fully licensed nurse who provides injections, treatments and therapy, to someone without formal medical training who helps with bathing.

Flexibility, both in time and money, should be a key factor. A policy should cover payments for sending a person to an adult day-care center, for example, which offers activities and provides a meal. Another good feature is respite care, which pays for an aide to come to the house and watch the person while the spouse or other caregivers go shopping or take a few days of badly needed vacation.

Even better, some policies will provide a monthly cash allowance for home care “allowing you to make whatever arrangements you want,” Firman said.

“This recognizes that services and needs change,” he said, allowing choices other than a standard four-hour minimum for a single visit that many home-care agencies require.

But you can’t simply demand the cash from the insurer if a parent or spouse is home and getting increasingly frail. Eligibility must be proven, usually by a doctor, nurse or social worker who will certify that the person needs help with two or more of the essential activities of daily living.

The bottom line: Shop carefully for a policy that gives you maximum flexibility to get help, either at home or in a nursing home.