The following is an article from AP Business Writer Dave Carpenter.
cHICAGO – Joyce Smith visited friends recently at a modern nursing home that made her thankful she has long-term care insurance. With relatively plush conditions, including large private rooms and lots of space and privacy, this was the type of safety net she could live with someday.
Turning to her husband, she said: “You keep paying that long-term care, Harry!”
While the Green Valley, Ariz., couple are healthy and hope they are years away from filing a claim, they figure they’ll end up in much better hands thanks to the long-term care policy they secured six years ago when Harry was 54 and Joyce was 60. They acted after watching Joyce’s mother Gladys fall ill and go into a nursing home without such protection, draining her life savings of $200,000 in 2 1/2 years.
“If you’re able to, you should have it,” Joyce says of the coverage. She takes comfort in knowing that she and her husband will be able to provide for any daily assistance they may need in later years.
The Smiths are among 8 million Americans with long-term care insurance — an area where insurers expect big growth as baby boomers zero in on their senior years.
The projections are high because the reality is that about 70 percent of people over 65 will require some type of long-term care services during their lifetime, according to the National Clearinghouse for Long-Term Care Information. It might come at any age, actually; 40 percent of people currently receiving long-term care are 64 or under.
But adding a significant extra cost can be daunting, especially at a time when many are focused on saving for retirement.
So can figuring out what level of benefits you want and how long a period to pay for. Most people get three, four or five years of coverage, because only 20 percent of today’s 65-year-olds will need care for more than five years. The more you sign up for, the higher the cost.
The price varies widely based on age, policy type, benefit level and number of years purchased, among other things, and can range from hundreds to thousands of dollars a year. Someone seeking protection equal to today’s average annual cost of care, about $55,000, would pay $1,064 a year for a standard policy purchased at age 55 or $2,013 for a similar policy at age 65, according to the American Association for Long-Term Care Insurance, an industry group.
As a benchmark, Consumer Reports Money Adviser recently noted that, in general, coverage may be largely unaffordable for people with a net worth below $200,000 to $300,000, not including their home. If you’re in that category, you will likely have to rely on government programs for any long-term care, which can cost you your choice of care facilities and, like Gladys, all your savings.
Other drawbacks also exist, including the limits and conditions of many policies.
But foregoing it is risky. Retiree health costs can be enormous without even factoring in the savings needed to cover long-term care expenses.
A man retiring at 65 in 2008 will need anywhere from $64,000 to $159,000 in savings to cover health insurance premiums and out-of-pocket expenses in retirement just for a 50 percent chance of having enough money, according to the Employee Benefit Research Institute, and $196,000 to $331,000 for a 90 percent chance.
A woman the same age would need $86,000 to $184,000 for a 50-50 chance and $223,000 to $390,000 to have a 90 percent chance.
The Smiths, who are retired, pay $4,995 a year for a joint policy with MassMutual that will provide extensive long-term care benefits for an unlimited time — now rare — when they become eligible by virtue of needing help with daily living activities. They consider themselves fortunate they locked in for that amount, having been told by their agent recently that it might cost triple the amount today.
“It’s one of those insurance products that’s kind of difficult to understand,” says Harry, a retired firefighter. “I studied it for nearly a year. ... But it gives you peace of mind to have it.”
Having the insurance also protects children from a potentially heavy burden.
“We’ve had friends tell us ‘We’re not getting long-term care, let the kids take care of us,”’ says Joyce, who with her husband has two daughters and a son. “Well, that’s not being very nice to the children. We don’t want our kids to have to take care of us.”
5 comments:
As a small business owner, we have LTC insurance in case something happens to either one of us. It wasn't an easy decision to make but we are confident that we made the right decision.
This article is to accentuate the concept of having a plan….not a policy. Nobody wants to buy insurance for something they do not think will happen. After all, I do not buy the extended warranties on my kitchen appliances. I do know it is possible they can need service, but I am willing to take the risk. That is my plan. However, if I have to replace my dishwasher…it will not be financially devastating or have any major effect on my family.
Although I believe that the risk of needing care my be less than my dishwasher breaking (hopefully) … the consequence to my family financially and emotionally could be devastating. My “plan” would most likely be to be able to stay in my own home…my last choice would be to enter a facility. The cost of home care can be as much as $100,000 per year. Where would the money come from? Without insurance I would have to rely on my income or assets. In retirement, my assets would be providing most of my income….and there is no “extra” income. So in actuality, Long Term Care Insurance would be the least expensive way to finance my “plan”. This way my assets and income would be undisturbed, and my family could continue their lives and lifestyles without having to sacrifice.
The conclusion is that Long Term Care planning is not about the risk of needing care…..its about the consequences to your finances and family. A good Long Term Care Insurance specialist can custom tailor an insurance plan to suit your needs and your budget. Schneider & Shulman Associates will do that for you at no charge. Call us toll free at 1 877 View LTC or visit ssltc.com
David, thank you for commenting. Most clients want to stay at home as long as possible.
The only ways that we can do that are:
1) Be lucky enough to have a well spouse or other family member that is willing and able to care for you...without killing or injuring themselves in the process (maybe set up a caregiver agreement here);
2) Have saved enough money to pay for that in-home care at a very high price each month (assuming you do not have the goal of leaving that money to be used in the well spouse's retirement or left to children);
3) Have a solid long term care insurance policy in place; or
4) Qualify for something like Ohio's PASSPORT program (provided through Medicaid), which will provide in-home care (but not round-the-clock) to qualifying seniors.
Clearly the least stressful on the family and easiest to set up is the LTCI. It's a very important issue for everyone to at least consider, in my opinion.
Usually the basic plan will pay covered expenses with no deductible up to the policy limit. Beyond that limit, the supplemental policy operates the same as a comprehensive policy that provides no other first dollar coverage. This means that after the basic policy limits are exhausted, a deductible kicks in followed by the major medical coverage.
Other medical expense benefits fall into a category in addition to the hospital, surgical and medical benefits previously discussed. These optional benefits vary from insurer to insurer and may or may not include as part of their standard policies. Separate policies can sometimes be written to include these benefits.
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