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Long Term Care Insurance: Buy it Young

I have a whopping bill to pay, and while I hate to do it, it is necessary. Women in my family live a long time. People in America are living longer. While retirement funds can look generous at the time you retire, health care costs and late-life care can eat those funds down to nothing . . . and then what?

It’s not like the old days. There was a time when we didn’t live so long, and women didn’t work. Who, these days, has time to stay home and care for the ailing elderly? Because we live longer, by the time we become ailing-elderly, our children are borderline elderly themselves, unable to do the heavy lifting that comes with helping the elderly do even the smallest of everyday tasks, bathing, grooming, eating, dressing – it takes strength.

I found this article on AOL’s Daily Finance page.

Long-Term Care Insurance Should Be Part of Your Financial Plan
by Michele Lerner, Mar 12th 2013 5:00AM

In the world of insurance products, long-term care insurance is a relative newcomer. It was introduced in the late 1970s, but in recent years, it has become a much more important element of retirement planning thanks to twin rises in health care costs and longevity. (Life expectancy in 1930 was just 59.7; in 2010 life expectancy for Americans was 78.7.)

Many people associate long-term care insurance with nursing homes, but it also pays for in-home care and assisted living facilities. According to the American Association for Long-Term Care Insurance, 50 percent of long-term care insurance benefits in 2011 went to pay for in-home care, 31 percent for nursing home care, and 19 percent for an assisted living facility.

How Long-Term Care Insurance Works

Each long-term care insurance policy is slightly different, but most benefits kick in based on a similar definition of “disability”: either you have severe cognitive impairment or you need help with at least two daily living activities. These activities include bathing, dressing, eating or using the bathroom.

In other words, you don’t just automatically receive the benefits when you think you could use some help or when you move into a retirement community. Policies are typically purchased with fixed daily benefits for a fixed period of time such as three years or five years.

Can You Cover These Costs Without It?

On an hourly, daily and monthly basis, the cost of the kinds of services covered by long-term care insurance really add up.

A 2012 MetLife Survey of Long-term Care Costs found:
The national average monthly base rate in an assisted living community cost $3,550 in 2012.

The national average daily rate for a private room in a nursing home cost $248; a semi-private room ran $222 per day.

The national average daily rate for adult day services was $70.

The national average for hourly rates for home health aides was $21.

While many people recognize the value of having insurance coverage to help pay for their care when they age, not everyone purchases it.

A 2012 Generational Research project by Financial Finesse showed that just 10 percent of people age 45 to 54 have purchased long-term care insurance, and only 16 percent of people age 55 to 64 have it.

Why are people forgoing coverage? It comes down to cost, according to the AARP.

How Much Does Coverage Cost?

Long-term care insurance can vary widely depending on your age at the time of purchase, the length and amount of coverage, and policy characteristics including whether your benefits are adjusted for inflation and the length of any waiting period before benefits are paid, among other things.

According to the American Association for Long-Term Care Insurance, the average annual premium for long-term care insurance in 2012 for a policy for a 50-year old with a daily benefit of $200 for three years of coverage and a 3 percent automatic compound inflation coverage was $2,235. Your policy can’t be cancelled (except for non-payment) and premiums for long-term care insurance cannot be increased on an individual basis for your age or health reasons. Still, insurance companies can raise the premiums for an entire class of policyholders (such as everyone age 75 and older).

Obviously, the older you are when you purchase long-term care insurance, the more expensive the policy and the higher the likelihood that you will be turned down for the coverage. Underwriters look at your health records as well as mortality risk to determine your eligibility for coverage.

Some companies give you a discount if you’re married because they assume spouses are likely to take care of each other longer before resorting to a nursing home.

Four Reasons You Need Long-Term Care Insurance

So how do you know if you need this kind of insurance? If you have more limited retirement savings, long-term care insurance should probably be part of your financial plan. And even if you have $2 million or $3 million in the bank for your retirement and future health care needs, don’t dismiss these policies before you examine the benefits more closely. Consider, for example:

How much longer we’re living these days. The longer you live, the higher your chances of needing some type of long-term care, either in your home, in a nursing home or in an assisted living facility.

Rising health care costs. AARP says that health care costs have historically outpaced the overall rate of inflation. If you need to live in a nursing home for more than a year or two, you could need $250,000 or more to pay for it.

How far your retirement investments will really take you. Your 401(k) may look good when you retire at 65, but if you need to pay for assisted living or even a home health aide the income generated by your retirement investments could get eaten away very quickly. If one spouse needs to live in a nursing home but the other can stay at home, you’ll need enough savings to cover two separate living expenses.
Your family’s emotional and financial health. Even wealthy families often choose to purchase long-term care insurance because the policy can make decisions about how to care for loved ones easier by giving them more options. Instead of draining their inheritance, your family members can use insurance benefits to pay for home health care or to cover some of the expense of a more costly nursing home.

Financial experts suggest purchasing long-term care insurance between age 55 and 64, but remember that the younger you are when you buy it, the lower your premiums will be. If you or your parents are 50 or 55, it’s time to discuss your options with an insurance agent.

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March 12, 2013 - Posted by | Aging, Circle of Life and Death, Community, Cultural, Family Issues, Financial Issues, Health Issues, Relationships, Social Issues, Women's Issues

7 Comments »

  1. Oh my! Look at your headline-LOL! We got LTC for this chassis several years ago.

    Comment by momcatwa | March 12, 2013 | Reply

  2. Dear Ms. Lerner, I purchased long-term care insurance from Prudential when I was 50. Now I am 62. If I had been informed that they could raise the rates and reduce the number of years of coverage, I would never have purchased this insurance. I have no assurance that they won’t do it again — in which case I will be forced to drop the policy, AND FORFEIT the 5 figure amount I put into it with no return. The company has already abandoned certain insurance types that are no longer profitable enough for them. It seems that as long as it is a good deal for THEM, I still have coverage. Years ago I also had a variable annuity with them which started out with what proved to be a “teaser” rate. At first chance, they reduced the interest rate well below the market rates. My agent never told me such a thing was possible. I was forced to end the policy and accept penalties, so I could put the money in a much more profitable CD. Assuming a person has discipline and can invest the payments in their own account, it seems that it would be much better to do so than to rely on insurance companies. After all, we are at their mercy when we ask for help – will they approve our request or will they even be in business at that time? I tried to send this to Ms. Lerner but the link to email didnt work. How can I reach her??? Harold Samtur, ThMediator@aol.com

    Comment by Harold Samtur | March 12, 2013 | Reply

  3. LLOOLLL! I wonder if my mind is going? I fixed it, long term car insurance indeed, LLOOLLL!

    Comment by intlxpatr | March 12, 2013 | Reply

  4. Harold:

    Michele Lerner
    e-mail: MicheleLernerNull@aol.com
    Michele Lerner, a contributing writer to The Motley Fool, has been writing about personal finance and real estate for more than two decades. Her work has been published in a wide range of publications and websites including Bankrate, The Washington Post, Insurance.com, HSH.com, REIT magazine, National Real Estate Investor magazine, The Washington Times, Urban Land magazine, Investopedia, and in numerous Realtor association publications. She is the author of “HOMEBUYING: Tough Times, First Time, Any Time.”

    Comment by intlxpatr | March 12, 2013 | Reply

  5. Long term care insurance is considered as one of the essentials these days. People live much longer and thus they become more vulnerable to chronic illnesses that will require long term care. Paying for long term care straight from your pocket isn’t enough. You might lose everything you’ve saved just by paying for these things. So I agree that people should include long term care when they’re planning for their retirement life. This can guarantee that all their ltc expenses will be covered and their assets will be protected while receiving extended care at home or at senor care facilities.

    Comment by ltci | May 5, 2013 | Reply

  6. ltci: I pulled a pertinent quote from your website:

    That bill is going to be a doozy too. Long Term Care is expensive. The average cost of a nursing home is currently over $70,000 per year. By 2030, it is estimated to rise to $190,600 per year. A quick note: If you live in New York City, you’re living the future today. The average cost of a home care aid has spiked to $32.50 per hour. That adds up to thousands of dollars a month. Many people need round-the-clock care, a burden that friends and family usually can’t bear, and let’s face it, you probably don’t want them to.

    Comment by intlxpatr | May 5, 2013 | Reply


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