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Long Term Care; Is It in the Cards?

No one really enjoys contemplating getting old and infirm.  Unfortunately, if one lives long enough, that may very well become a reality.  We "boomers" have chosen to act as if we would never get old and have to confront that unpleasant scenario.  However, as we approach 60 and occasionally see our friends and formerly stalwart contemporaries fading from the effects of time, we often get smacked in the face with reality.  There is no way to sugar-coat it friends, it isn't all that pretty; then, neither is the alternative.  If we are lucky, we will drop dead on the 18th green after shooting our age or die in the throes of mad, passionate love at, oh say, 102.  But, the odds are against either of those happening.  More than likely, if we live long enough, we will deal with the debilitating effects of aging long after we have given up golf and mad, passionate love.

As folks age, they sometimes lose their independence and have to rely on others to help with their daily tasks of living.  This can take many forms ranging from a friend or family member stopping by occasionally to full time nursing home care.  The former may not be so expensive; the latter is very expensive.  Let me share with you some statistics that I ran across as I was considering this topic.  According to the 2000 census, approximately 4.5% of the over age 65 population were living in "nursing homes."  Those odds do not sound too bad you may be thinking.  But as one ages, the odds change, and not for the better.  More accurately, in 2000, 1.1% of the 65 to 74 were in nursing homes; 4.7% of the 75 to 84 found themselves in nursing homes, while 18.2% of the 85 and up were living in nursing homes.  Also, consider that the average 65 year old today can expect to live to age 83; that means, of course, that about half will live longer, some much longer.  The average length of stay in a nursing home is 2.43 years; slightly longer for you girls; slightly less for us guys; and the average age for a long-term care claim is 78.  These are sobering statistics for me!  So, we "boomers" would do well to consider, and prepare for, the eventuality of our needing some form of long-term care in our declining years.

Most long-term care is provided in the home by family members.  In fact, about 71% of all long-term care hours are provided in the home by family, typically by a spouse, daughter, or daughter-in-law.  We guys typically do not get too involved providing long-term care, but are often the recipients.  This in-home family arrangement is certainly financially cheaper, but it does not come without a cost.  The care giver often ends up socially isolated, depressed, and sick herself.  If the care giver is an elderly spouse, they may be hesitant to spend the money necessary to provide adequate care, even if assets are readily available, because they fear running out of money themselves.  Older people just seem to horde their money as it relates so directly to their security.

The odds of a family experiencing a major house fire during their lifetime is one in 1200; the odds of that family experiencing a major auto accident is one in 240; but the odds of someone in that family needing some form of long-term care is much higher, about one in 20.  Nearly everyone insures against the risk of a house fire and auto accident, yet until recently very few bought insurance for the greater risk of needing long-term care.  This has been the case in spite of the fact that the cost of nursing home care ranges from $70,000 to to over $100,000 per year, depending upon where you may find yourself in our great country.  Everyone by now should know that Medicare will cover almost none of this expense, and Medicaid will take over only after the family has expended virtually all of their assets.  Insurance has been available for this type of care since the early 1970s when it was called simply nursing home insurance.  It now goes by the more dignified name of long-term care (LTC) insurance and can also provide financial help for at-home care, assisted living care, as well as nursing home care.  But, it does not come cheaply! A couple in their mid-fifties can expect to spend anywhere from $2,000 to $5,000 per year for a policy that covers both of them with $110,000 total benefit for three years with a 90 day elimination period and inflation protection from a major insurance carrier.  The size of the premium depends greatly on the additional riders you may add to the policy, and the younger you are when the policy is purchased, the lower the premium will be.  Of course, the younger you are when you buy the policy, the longer you will get the privilege of paying the premiums.

So, do you need to fork over your hard earned money for a LTC policy?  Again I am reminded of the sage, Yoda, who said, "Hard to see; ever changing the future is."  The questions surrounding the decision to buy LTC insurance are many and varied, and answering all of them in this article (or any article) is well beyond my abilities.  I will tack some links to the bottom of this that will lead you to a few sites that will give you much more information as you consider this in light of your own circumstances, but I can offer a few thoughts to get you started.

  • If you are a couple with assets of at least $100,000 (excluding your home and cars) and have a yearly retirement income of $40,000 to $50,000, you may be a candidate for LTC insurance.
  • Most authorities I have read believe that if your net worth is approaching the neighborhood of $2 million or so, you should be able to self insure.  This assumes that you are willing to spend your money taking care of yourself in your dotage and are not overly concerned with passing all that money along in your estate.
  • If you will be living primarily on your Social Security check, then you are not a candidate for LTC insurance because you simply cannot afford it.
  • You should determine that you will be able to pay the premiums without adversely affecting your lifestyle.
  • You should be able to absorb future premium increases without financial difficulties.  If your personal finances deteriorate and you miss a payment, you will lose coverage.  LTC insurance is a lifetime commitment once you initiate a policy.
  • Some have taken the view that they will initiate their own "sinking fund" to handle any future long term care needs. This is a viable option for some, but makes the big assumption that the money so specified grows at the rate of inflation, is readily available when the need arises, and does not get caught up in some other life emergency.
  • You should note that those banging the drum the loudest about the need for LTC insurance are the insurance industry and their trade groups, not exactly impartial observers.
  • One option is to choose a policy that pays less than the full cost of care and plan to self insure the balance.  This offers a less expensive premium payment while still providing some coverage.

One huge, obvious advantage of LTC insurance is that it gives the owner a choice when the need for long term care arises.  Those with few assets and low income in their retirement years will have fewer choices.  They are left depending on family members for care as long as possible and then, after their resources are expended and family members are worn out, with whatever services Medicaid may provide.  Although there are exceptions, facilities that accept Medicaid are just not as nice and user-friendly as are private facilities.  The occupants usually share rooms, and their sense of dignity and self-worth suffer.  Medicaid recipients generally do not get the level of care provided to private payers in the long term care arena.

Other issues to consider when purchasing LTC insurance include when will the policy pay out (i. e., how many of the activities of daily living (ADL) must one require help with, and how are the ADLs defined, before the policy pays), how often does the policy pay (once a month, as the expenses accrue, etc.), the strength of the issuing insurance company, and whether or not the policy is "tax-qualified."  All of these are vitally important and one should thoroughly understand them before signing on the dotted line.  They are beyond the scope of this article, but the links below will help you consider all of them.  Suffice it to say, if you are in the market for a LTC policy, you will need to do the "grunt work" of your own research prior to talking with a number of agents specializing in this type of insurance.  There are no short-cuts.

I found a very thorough discussion of this topic in The Wall Street Journal Complete Retirement Guidebook by Glenn Ruffenach and Kelly Greene.

For a very enlightening article on determining your need for, and ability to afford, LTC insurance, read this report by the Kaiser Family Foundation,

Smart money provides a slick little calculator that will help you determine if you can afford to self insure at

Investigating the issues of LTC insurance has been very enlightening for me.  I hope that this discussion has prompted you to consider this topic as well.  One thing is for sure: if we ever find ourselves old, sick, and in need of long term care, it will be too late to wish we had visited these issues earlier.



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