Should I Get Long-Term Care Insurance?
I spoke to my father yesterday and curiously asked him about his thoughts on assisted living facilities. “Absolutely depressing!“, he said. I couldn’t agree more that assisted living programs are depressing given it reminds us everyday about our mortality.
Who wouldn’t want to stay put in a home they’ve lived in for years instead? I know I would. Home is a special place that makes us feel comfortable and warm. Ideally, you own your home outright in retirement and no longer have payments. However, this is a topic for another post.
We can only hope that we remain healthy for the rest of our lives, but we’ll eventually need some help thanks to injuries or illnesses. Some of us will have the financial strength to comfortably pay for our healthcare in retirement. Others might have wealthy children to rely on. But what if you do not want to burden anybody, and don’t have that much money to last?
Buying long-term care could be an ideal solution for your retirement years.
THE IMPORTANCE OF LONG-TERM CARE INSURANCE
Long-term care insurance generally covers home care, assisted living, adult daycare, respite care, hospice care, nursing home and Alzheimer’s facilities. If home care coverage is purchased, long-term care insurance can pay for home care coverage, such as the cost of a live-in caregiver, housekeeper, or therapist for up to 7 days a week, 24 hours a day.
Clearly, one can imagine this type of care is not cheap, often ranging from $50,000 to $75,000 a year. You might think long-term care (LTC) is only reserved for people ages 65 and up. However, that’s wrong as LTC insurance can be purchased and used for everyone of all ages. In fact, according to Wikipedia, 40% of those receiving LTC are between the ages of 18-65.
According to a survey done by New York Life Insurance Company, the 2009 national average per night at a nursing home costs $220 a day, or some $90,000 a year on average. Given the average stay at a nursing home, or need for long-term care is about 3 years, one would need over $200,000 to pay for long-term care if one doesn’t have LTC insurance.
|California Average Nursing Home Cost|
Why Would You Want Long-term Care?
* You don’t have the financial capacity to take care of yourself.
* You don’t have any children.
* You have children who don’t want to help, or don’t have the financial ability to help.
* You don’t want to feel like a burden on your children, friends, or relatives.
What Determines Long-Term Care Insurance Premium Rates?
Long-term care insurance rates are determined by six main factors: the person’s age, the daily (or monthly) benefit, how long the benefits pay, the elimination period, inflation protection, and the health rating (preferred, standard, sub-standard).
According to “America’s Health Insurance Plans” The average age of purchasers has dropped from 68 years in 1990 to 61 years in 2005, and the number of purchasers who are under age 65 has increased significantly.
Most companies offer multiple premium payment modes: annual, semi-annual, quarterly, and monthly. Companies may add a percentage for more frequent payment than annual. Options such as spousal survivorship, non-forfeiture, restoration of benefits and return of premium are available with most plans.
According to the website Allaboutlongtermcare.com, the following chart below shows a rough estimate of a $219,000 ($150 a day), 4-year benefit LTC plan. As we’ve already discussed above, it costs $200,000+ already for only a 3 year plan, therefore the annual premiums here are likely 30% too light. Please note you can take various different amounts of LTC insurance coverage e.g. 2 year coverage, 5 year coverage, lifetime coverage and benefit amounts of course.
As you can see, the older you are, the more expensive LTC insurance will be. That’s not a surprise. Nobody really knows how much long-term care they need, because nobody knows exactly when they will start needing help, and when they will die. However, statistics show that the median life expectancy is 80, and the majority of us will require 2-5 years of long-term care before we die.
The policy premiums of long-term care insurance are created to account for the majority of people. Of course, if you are more conservative and believe you will live a long time, then you should consider getting more coverage. However, life expectancy and quality of life are two separate issues. You could live until 100 and just need care from ages 98-100. Or, you might be unfortunate to contract something at 75, but live on in an unideal state for 25 years, requiring $2,125,000 (25 X $80,000) to pay for LTC.
CONCLUSION TO LONG TERM CARE
If you do not have $200,000-$300,000 in liquid cash saved up, are not very healthy, and have no children to rely on to pay for long-term care, you should consider taking out LTC insurance. Remember, LTC insurance is not necessarily an age issue, as 40% of those receiving long-term care are between the age of 18-65. Every single major insurance company provides long-term care so shop around for the most competitive rates.
Long-term care is insurance that pays off after a pre-determined period, which is usually after both short-term and long-term disability runs out after 12-36 months if you are working. You can tell from the charts that the cost of LTC is getting incredibly expensive, way outstripping the rate of inflation. As a result, you’ve seen the average LTC policy holder’s age decline to age 61 from 69 according to America’s Health Insurance Plans.
Feeling like a burden is a terrible, terrible thing. I can’t stand relying on people given my pride and guilt. However, getting long-term care is a personal decision only you can decide to make. Hope this information helps!
I encourage everyone to shop around for health insurance, especially with the Affordable Care Act debacle that is not proving to be cheaper for many people. The internet has really helped lower the cost of insuring yourself and your family. eHealthInsurance has some of the lowest rates and best coverage due to its largest network online. They are based right here in the Bay Area, and I have met a number of their representatives.
Photo: Old Man Resting In Santorini, Sam.