You don’t want to think about the day you may need help getting dressed or bathing, but according to America’s Health Insurance Plans about 19% of Americans 65 years of age and older presently deal with some degree of chronic physical impairment. Among those aged 85 and older, 55% could benefit from long term care. By the year 2020, its projected some 12 million older Americans will need long term care.
To be clear, long term care goes beyond the regular medical care you receive at your doctor’s office. Specifically, long term care refers to the help you receive for a chronic illness, disability, or cognitive impairment that leaves you unable to care for yourself for an extended period of time. Long term care can be provided in a nursing home, assisted-living facility, or in your own home.
Long term care typically is not covered by your health insurance and, because it involves one-on-one, customized care, it can be expensive. For example, according to a 2003 study by the American Association for Long-Term Care Insurance (AALTCI), a home health aide costs $72 per visit, moving to an assisted living facility runs $2,379 per month, and a stay in a nursing home costs between $4,747 and $5,437 per month based on whether you have a semi-private or private room. Of course, these expenses vary considerably by region.
Because long term care has the potential to be your second biggest purchase after your home, you may want to cover those costs completely, or in part, by purchasing long term care insurance. Policy benefits typically are expressed in daily amounts, with a lifetime maximum. Some policies pay half as much per day for at-home care as for nursing home care. Others have a pool of benefits that can be used as needed.
But who should buy the coverage and when? Many experts use net worth as a purchasing guideline. On one end of the spectrum, individuals with lower net worth will quickly exhaust their assets when funding long term care and qualify for Medicaid, a government program that pays the medical and long term care expenses for those who can’t pay for themselves. At the other extreme, if you have liquid assets in excess of $1.5 million, you may be able to pay for any potential long term care costs yourself. Of course, keep in mind that “self-insuring” requires investing a portion of your assets in a conservative fashion to cover possible long term care expenses.
If you fall in between these two categories, it’s worth weighing the trade-offs between the peace of mind a long term care policy might bring you and the premiums you will pay. Most experts suggest beginning this analysis around age 50. If you wait until your 70s, it may be too late to purchase insurance as some long term care insurance companies place restrictions on the age and health status of buyers.
In fact, a recent AALTCI report underscores the benefits of considering purchasing long term care insurance sooner rather than later. The AALTCI’s analysis of data provided by eight leading long term care insurers, representing some 80% of new individual policies sold in the U.S., found that individuals who are in good health qualify for discounts that reduce the cost of long term care insurance by 10 to 20% each year. Specifically, 66.5% of those under age 30 qualified for a “good health discount” compared to just 44.2% of those between the ages of 50 and 59. Of those between the ages of 70 and 79, 18.8% qualified for the discount, while just 11.2% of those aged 80 and over qualified.3
In summary, while net worth and age are factors to consider in your evaluation of long term care insurance, in the end, the reasons individuals purchase the coverage cut across net worth. For example, someone with a lower net worth may feel so strongly that he not become a burden to family members that he makes cuts elsewhere in his budget to afford the long term care insurance premiums. Alternatively, someone worth $10 million who easily could pay long term care bills herself may decide that she wishes to protect her assets for her heirs and transfer all her health risks to an insurance company.
To learn more about long term care insurance, you can visit The Insurance Information Institute at www.iii.org or Long Term Care Planning Month at www.ltcmonth.com. Remember, long term care can be an emotional issue, but it’s best to evaluate the product as a risk management tool, like your homeowners, life, and auto insurance. Finally, because policy language can be ambiguous and insurance companies seem to introduce new riders on a daily basis, it’s wise to consult with your financial advisor before purchasing long term care insurance. We can ensure you are dealing with a reputable insurance company and help you to select appropriate policy features.
