Before talking specifically about long term care insurance, let’s remind ourselves of the function that insurance plays in our lives.
Insurance is our financial defense. Anyone who is attempting to build wealth or move forward financially must be sure that nothing devastating or unexpected will undo years of responsible financial planning. Imagine a person who has slowly been building wealth for the last two decades but does not have health insurance. It only takes one major surgery to burn through hundreds of thousands of dollars of savings.
Thus, when we consider the topic of insurance, it is not an offensive financial move, but a defensive one.
What is Long Term Care Insurance?
Long-term care insurance (LTCI) is insurance that will pay your expenses if you are admitted to a long term care facility. These facilities are often referred to as nursing homes, but are typically institutions that help provide the requisite daily living services when an individual is unable to care for him or herself. This may include bathing, transportation, cooking, eating, and dressing assistance.
Since a vast majority of people will enter a nursing home eventually, it is essential to have a plan to deal with the cost of long term care. Of course, purchasing long term care insurance is the easiest way to do so.
Doesn’t Medicare or my standard health insurance cover my nursing home stay?
While every state has its own policies, it is safe to say that in order to qualify for Medicare coverage during your nursing home stay, you must be impoverished by the state’s definition. While you might be able to get a minimal amount of benefit for a short stay, relying on Medicare is simply not a viable plan for dealing with the cost of long-term care.
You will also need to check the coverage and benefits offered through your health insurance provider. Like with Medicare, it is extremely rare for standard health insurance to cover long term care. There may be temporary allowances made for a short stay, but usually not for an extended period.
Therefore, you will most likely need to purchase LTCI or pay cash for your long term care if you wish to live in a comfortable facility.
Who should purchase long term care insurance?
We now return again to our original question – should you purchase long term care insurance? How you answer this question speaks to the underlying decision one makes when purchasing any kind of insurance. If you can afford the premiums and you’re considering a reasonable policy, get insured. If you cannot afford it or the insurance in question protects you from something that is extremely unlikely, an asteroid hitting your house for example, then don’t take out a policy.
Remember that LTCI becomes more costly as you get older. This occurs precisely because the likelihood that you will need long term care increases as you age. However, do not put off getting it because you think you are too young to need it. Unfortunately, anyone could end up needing LTCI, and while the risk of needing it is smaller when you are younger, you will need it for longer should something happen. Think about it: If the risk of people under 40 needing LTCI was really too small to warrant coverage, insurance companies would be selling policies for tens of dollars instead of hundreds. So if you can afford it, why not be prepared for the worst?
The US Department of Health and Human Services reports that the average annual premiums in 2007 were as follows:
• Under age 40: $881
• Ages 40-49: $1,781
• Ages 50-59: $1,982
• Ages 60-64: $2,249
• Ages 65-69: $2,539
• Ages 70+: $3,026
However, there is another component that is perhaps deeper than money. This is the issue of family burden. If you can afford the insurance, one way to help your children is to properly insure yourself. Otherwise, the burden of caring for you will fall on your children.
Eventual Cost of Care
The cost of long term care varies depending on your city or state. However, the John Hancock Cost of Care Survey shows that a person living in Houston, Texas will pay about $35,000 per year for assisted living and an average of nearly $47,000 for nursing home care. Remember, these rates will increase annually due to the cost of living. You can check the current rates in your city and state if you click here.
Any of you have that kind of cash sitting around? If you have any assets of value and can afford the payments, you should purchase long term care insurance to help foot the bill. Defining assets of value can be difficult, but if you have a retirement income of $50,000 per year or assets over $100,000, then you should buy LTCI. The best way to protect those assets and that income would be to buy the insurance.
Understanding the Different Benefits Associated with LTCI
Like any insurance policy, the value of your plan is going to be dependent on the inclusions and the coverage limitations. Here are some items you’ll need to review closely as you consider your policy.
Daily Benefit: Do some research and find out the average daily cost of facilities around you, and be sure that your daily benefit covers that amount with a little extra margin.
Duration of Benefit: Most benefits insure a person for 2-5 years, but is it also possible to buy something that has a lifetime benefit?
Deductible (elimination period): With LTCI insurance, your deductible is typically measured by duration. This is the number of days you’ll need to be in a nursing home or similar facility before the insurance company will start paying benefits. Of course, the shorter the period, the more expensive the policy will be.
Inflation Protection: Especially if you are a younger person, you’ll want to look closely into the feature. As the price of LTCI increases, you’ll want to be sure you are insuring your benefits in tomorrow’s dollars, not today’s.
LTCI is an important part of every financial plan. If you have any assets of value you should consider purchasing long term care insurance as soon as you can afford it. Remember, the younger you are, the cheaper the insurance will be on an annual basis. While some people recommend waiting until you’re 60 before buying LTCI, remember that you might not qualify when you get older. Besides, there is always the risk that something might happen and you will need long-term care, no matter how old you are.