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Do I Really Need Long-Term Care Insurance?


By the time most people want to start thinking about long-term care insurance, the premiums are either very high or the person cannot even get coverage due to his/her health history.

Most younger people are not probably thinking of long-term care (LTC) insurance. It’s no surprise that people close to retirement or at the retirement age are thinking about LTC insurance as they want to be prepared for the financial burden of potential extended stays in a care facility. They fear the vulnerability of their retirement savings to the unknown and uncontrollable.

The problem is that by the time most people want to start thinking about protecting themselves, the premiums are either very high or the person cannot even get coverage due to his/her health history.

LTC insurance covers the cost of basic daily needs over an extended time. While health insurance helps with immediate medical expenses (e.g. a trip to the doctor, a prescription, a particular sickness, etc.), LTC insurance helps people with the cost of care for various disabilities and/or chronic diseases assuming they meet certain conditions spelled out in the insurance policy.

Obviously death is inevitable but it’s not certain whether or not you or I will spend time in a care facility before we pass away. This care could be home care, assisted living, respite care, hospice care or a nursing home. It’s noteworthy to mention that people who need LTC typically are not actually sick with a specific disease, but they are just unable to perform the basic activities of daily living.

Here are some interesting facts:

• According the National Clearinghouse for Long-Term Care Information, men (average age 65) are expected to require some type of LTC for 2.2 years and women (also average age 65) are expected to require 3.7 years of care.

• About 60% of individuals over age 65 will require at least some type of LTC services during their lifetime, according to the Centers for Medicare and Medicaid Services.

• Yet, according to the American Association for Long-Term Care Insurance, only 8 million out of 313 million Americans actually have LTC insurance.

• The costs for these care facilities are far from cheap. They can wipe out your entire savings. They can cause you to bestow significant financial burden to your family.

For example:

— Assisted living can cost $4,000 to 6,000 a month on average while nursing homes can cost $300 to $450 a day

— A home health aide can cost $20 to $30 an hour

— Many people presume that Medicare/Medicaid will cover LTC; but Medicare does not typically cover it and Medicaid only pays for it if you have little to no assets.

When evaluating LTC insurance options, read the fine print to see what it covers (as well as the maximum benefit) as plans will differ. According to the 2013 Milliman Individual LTCi Survey, published in Broker World Magazine July 2013, the average premium per new policy in 2012 was $2,449, a 5.5% increase from 2011 and the average issue age is 56.25 years.

The study also showed that 20% of plan applicants are rejected for coverage. It’s interesting to note that coverage has gotten more expensive in the last decade with fewer insurers offering plans; the demand will only increase with the increased amount of baby boomers in retirement.

In the creation and management of a comprehensive financial plan, it remains integral to consider the threats like LTC costs to the safety of your long-term assets.

This blog post is limited to the dissemination of general information pertaining to investment advisory and/or financial planning services and general economic market conditions. The information contained herein should not be construed as personalized investment or financial planning advice. Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed herein will come to pass. Investing in the stock and fixed income markets involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security or engage in a particular investment or financial planning strategy.

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Victor J. Dzau, MD, gives expert advice
Victor J. Dzau, MD, gives expert advice