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Peace-of-Mind Policy

New John Hancock long-term-care product hopes to jump to the head of the pack.

We all insure our most valued assets: our homes, our cars, our lives. Then why not insure your retirement plans against the unexpected and potentially devastating costs of long-term custodial care?

John Hancock

says it aims to let its customers do just that -- and make long-term-care insurance dramatically easier to understand -- with its new Leading Edge policy, which hits the market this week.

It's human nature to avoid thinking about growing older. Who wants to consider the possibility that your parents -- or you -- will need help with basic tasks like bathing, dressing or even getting out of bed?

The assistance you may need is very costly and could easily wipe out your retirement savings. The latest

MetLife

survey shows that the average cost of care in a private room in a nursing home is more than $75,000 a year.

(And this is particularly a women's issue, as 72% of all nursing-home residents are female, many of whom spent their energy and money taking care of a now-deceased spouse and find themselves alone and impoverished.)

This kind of custodial care is not covered by Medicare or supplemental policies, only by long-term care insurance policies that will pay for assistance in your home, an assisted-living facility or in a nursing home.

A warning: If you are planning to spend down -- or give away -- your assets to become eligible for your state's Medicaid program to pay for your care, think again.

With medical costs soaring, most states are scrutinizing the finances of potential Medicaid recipients. In addition, the majority of Medicaid programs only cover nursing-home care, which leaves you without the choice of home health care, assisted-living facilities or care in better nursing homes, most of which do not accept Medicaid patients.

Do you want to spend your final years in a state-funded nursing home, just as other baby boomers are crowding in? I thought not. So long-term-care insurance is worth examining.

Keep Your Eyes Open

Don't cringe and close your eyes. These are

not

nursing-home policies. Actually, they provide choices designed to keep you

out

TheStreet Recommends

of a nursing home unless absolutely necessary.

These policies can be complicated. Few agents understand all the tradeoffs and technicalities -- including amounts of coverage (daily benefits of $100 to $200), inflation protection (none, simple or compound) or benefit periods (three years, five years or lifetime), to mention only a few of the variables.

But the cost of a long-term-care policy depends on these variables, plus the age at which you purchase your policy and your location (costs are higher in big cities than in small towns). You should start considering a policy in your fifties, when you're younger and presumably in good health, so you can qualify for a policy at a lower cost.

There are more than a dozen companies offering these policies, including John Hancock,

MetLife

and

Genworth

(the former GE), each with its own coverages and choices.

John Hancock's Leading Edge policy has a few interesting features that make it ideal for people worried about the costs of lifetime coverage, especially since, according to health care industry statistics, 90% of people who file claims on long-term-care and lifetime-care policies utilize the benefits for only about five years.

Built-in inflation protection:

The Leading Edge policy includes compound inflation protection linked to the Consumer Price Index. When the CPI increases, so do the benefits -- on a compound basis. If the CPI decreases (which happened most recently in 1955), the benefit remains level, until the CPI rises again.

Five years plus $1 million

: It's possible that nursing-care costs could outstrip the CPI, so this feature has the potential to give needed peace of mind. Many people have purchased lifetime coverage, fearing the need for a long-term period of care. This policy mitigates that worry by offering a five-year benefit period, plus an additional $1 million. That is, if the pool of money from your five-year period runs out, you automatically get an extra $1 million in benefits.

The result is a policy that is significantly less expensive compared to buying coverage for your entire lifetime.

For example: If you're 55, married and seeking $150-a-day coverage, this new policy would cost about $1,974 a year, compared to around 25% more for lifetime coverage from most companies.

If you wait to buy until you're age 62, the premium is $2,800 a year -- less than the cost of two weeks in a nursing home. It's even affordable for most people at age 68, costing $4,200 a year, more than $1,000 less than lifetime coverage.

Yes, you may pay premiums for years, and you may never use this policy. But after age 65, the odds are 10 times better that you'll need some form of long-term care than that your house will burn down -- and you always pay for your homeowners insurance without complaint, don't you?

Most long-term care policies offer an additional important feature -- support for the caregiver and family in finding resources to utilize their benefits. Hancock's new policy provides personalized telephone and Web site assistance and access to quality reports and ratings on more than 90,000 nursing-home and assisted-living facilities -- as well as provider discounts on some services.

In addition, if you must leave a nursing home for hospitalization, your place in the facility will be held for up to 60 days.

With this new policy, I think John Hancock has moved ahead of the pack. It's not that some of these benefits aren't available in other companies' policies. But now the insurance industry will likely be challenged to make all long-term-care policies more understandable, affordable and accessible.

That's a good thing because Baby Boomers are going to need them. And that's The Savage Truth.

Terry Savage is an expert on personal finance and also appears as a commentator on national television on issues related to investing and the financial markets. Savage's personal finance column in the Chicago Sun-Times is nationally syndicated, and she released her fourth book,

The Savage Number: How Much Money Do You Need?

in June 2005. Savage was the first woman trader on the Chicago Board Options Exchange and is a registered investment adviser for stocks and futures. A Phi Beta Kappa graduate of the University of Michigan, Savage currently serves as a director of the Chicago Mercantile Exchange Corp. She also has served on the boards of McDonald?s and Pennzoil.