Facts About the Forgotten Policy

December 01, 2017
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Everybody knows about life insurance, and disability insurance covering millions through corporate plans.  Health insurance is always in the news thanks to the controversy around the Affordable Care Act. 

But what about the forgotten stepchild: Long-Term Care (LTC) insurance?  How much do you know about it?  How do you know whether you need it or not? 

Recently, the Morningstar mutual fund service published an eye-opening blog that provides 75 statistics about LTC coverage, some of which will help people evaluate this often-forgotten piece of their personal risk profile.  

For instance; 52.3% of people turning 65 will need long-term care during their lifetimes—meaning either skilled care providers in their homes or, more often, a stay for months or years in a nursing facility.  Already, 10% of Americans over age 65, and 38% over age 85, currently have Alzheimer's dementia, which, in its advanced stages, requires round-the-clock care. 

But before you buy that policy that will pay for 5 years of assisted living or space in a nursing home, you should know that the average long-term care need for individuals who today are age 65 is 2 years, and only 22% of men will ever need more than one year in a nursing home.  The figure rises to 36% for women.  There is only a 2% (men) to 7% (women) probability of needing more than five years in a nursing home. 

Self-Insuring 

If you self-insure, what kind of costs are you looking at?  The median yearly cost for adult day care in the home is $17,680, but that rises to $43,539 a year if you move into an assisted living facility, and you can more than double that cost if you prefer a private room ($92,378).  Some places, like Manhattan, cost more: $164,250 for a private room per year. 

Why can’t you just move in with your relatives if you begin to experience symptoms of Alzheimer’s or are too frail to get around on your own?  The Morningstar cites some statistics: unpaid caregivers (usually family members, usually a daughter) suffer significant financial hardships; their 37 billion hours of unpaid labor cost them $3 trillion in potential earnings, in the most recent year for statistics (2013).  70% of these unpaid caregivers suffered work-related difficulties due to their caregiving duties. 

Government Payments 

Doesn’t the government pay for many peoples’ LTC expenses?  Yes! In fact, 62.3% of long-term care services and supports are provided through Medicaid—and these payments make up roughly 20% of Medicaid’s total budget.  But there’s a catch. A Medicaid recipient can only retain up to $120,900 (total assets) to be eligible for long-term care benefits provided by Medicaid. 

LTC Insurance Providers 

Suppose all of this has convinced you to buy LTC insurance.  You should know that there are now fewer than 15 insurers offering standalone long-term care policies, down from 125 back at the turn of the century.  Altogether, 7.25 million individuals have long-term care insurance coverage, with average annual premiums of $2,772.  Total benefits available at age 82, for a person who bought a typical policy at age 60 -- $547,000. 

Summary 

LTC insurance can be a cost that can wreak havoc with your retirement planning.  If you do not have sufficient wealth to self- insure, using your own assets to fund care costs, you put yourself at significant risk of financial failure during retirement.  Let us share with you a story: wife has been recently diagnosed with Alzheimer’s disease and then placed into an Alzheimer Care Facility, in California, at a monthly cost of $9,200.  Further, her husband is showing signs of dementia, which may result in further care costs when he can’t care for himself.  Within several years this couple is likely to exhaust all of their retirement savings. 

Whether to buy LTC insurance or not is a decision based upon your total financial planning.  What does that mean?  It means that if you are very wealthy you probably have the capacity to self-insure, or if you are very poor Medicaid (in California it is MediCal) can pay for your care needs.  On the other hand, if you are middle class with some affluence you need to buy LTC insurance. 

Blog No. 129 – Facts About the Forgotten Policy 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This article is intended to assist in educating you about insurance generally and not to provide personal service.  They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you.  In addition, state insurance laws and the ability of the issuing company.

Sources: hhtp://news.morningstar.com/articlenet/article

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