Long Term Care Insurance

Posted on | July 22, 2008 | Comments Off on Long Term Care Insurance

Is it a good idea?

With Baby Boomers aging and all Americans living longer lives, the question of long-term care is on a lot of people’s minds. You may be surprised to know that the average cost of one year in a nursing home now exceeds $70,000. Even more daunting, though, is the fact that the average net worth of 65 year olds today is only $110,000.

This means the cost of living in a nursing home could take everything you have, including your home, in 18 months or less. And for younger people, the news will only get worse: The estimated average cost for one year in a nursing home in 2030 is $190,000.

Currently, only 7% of American seniors have enough saved to cover even one year of nursing home care. Thus, 70% of single people and 50% of married couples who require long-term care become destitute.

The reality is that 60% of current 65 year olds will require some kind of long-term care in their lifetime – either at home, in an assisted living facility, or in a nursing home. That’s why so many people are looking with renewed interest at long-term care insurance, a safety-net concept for seniors that has been around for quite some time, but is now suddenly more relevant than ever.

Long-term care can range from basic help with tasks around the house to more essential assistance with activities of daily living – like bathing, eating or getting dressed.

Many think they will be able to fall back on family members or friends, but looking ahead, this safety net is likely to weaken. With the size of the American family getting smaller, there are fewer adult children to do the care giving. Also, children live farther away from their parents than they did a generation ago.

Medicaid used to be more of an option for nursing home care. Some families “spent down” their assets, basically causing themselves to go broke on paper and then qualifying for government payments to a nursing home. But the Deficit Reduction Act of 2005 has modified the rules, making it somewhat more difficult, though not impossible, to qualify for Medicaid coverage.

That leaves long-term care insurance as an option. The policies are increasingly common and flexible, but, of course, they’re not free. It can cost a 55 year old $5,000 per year for a plan that provides $200 per day for a lifetime with an annual 5% inflation adjustment and an initial 60-day waiting period. That probably puts this type of insurance out of reach for a good number of people. But there are a few things you can do to bring down the cost, ranging from limiting the benefit period to sharing a policy with your spouse. To learn more about long-term care insurance, watch this week’s video, embedded with this blog post, or read the full transcript. Then let me know your feelings: Should we be doing more to provide long-term care options for our citizens?