Friday, July 10, 2009

The LTC Policy by the Numbers

Buying long-term care insurance is not the only way to pay for the care and assistance you and others might need as you age. Another way is to have a savings and/or investment plan in which you put so much money away a month until you have saved enough money to cover several years of care.

Only about 8% of all elderly reside in a nursing home, so you may choose to play the odds and not plan for nursing home care. It's a gamble, but you may be willing to accept the risk if money is tight. But recent statistics show that from 60-75% of the US population will require extra care in the family home or will live in some type of assisted living community. Three out of four people. Those are odds I'm not willing to play.

Saving or planning for long-term care is as important as saving for college, for retirement, or for the big vacation. You use the same priniciples. You have a timeline; you can estimate how much you may need (see the post on Costs of Care); you can estimate how much you'll need to put away each month and how much interest the funds need to earn to meet the total cost. Long-term care insurance can augment or take the place of the savings plan.

So the question is: is an LTC policy really cost-effective? This is something that you will need to judge for your own and for your parent’s situation. Let's look at an example.

As we learned last time, LTC insurance can be used for both in-home care and nursing home care. But nursing home care is the larger burden, so we'll start with that. I'm talking to you or this is you, talking to your parent.

Let’s assume that you’ve purchased the insurance at age 50 and when you're 70, you develop a condition that requires nursing home care. You’ve been paying premiums for 20 years. You can expect to be in the nursing home 3 years (a number from the statistics experts).

Cost of insurance premiums
• High end, high coverage options = $250/mo X 12 mo/yr X 20 yrs = $60,000. Benefit = $120/day
Your Benefit from the policy
• 365 days X 3 yrs = 1095 days X $120/day = $131,400
Nursing home cost
• Average $176/day X 365 days/yr. = $64,240/yr X 3yrs = $192,720

You’ve paid $60,000 in premiums, but the benefit you will receive is $131,400. You’ve certainly gotten your money back in this scenario. The benefit does not cover all the cost of the nursing home, but without the policy, depending on your assets, you could be responsible for most of the $192,720.

You can do the same calculation for in-home care. Remember, the LTC insurance benefit for in-home care may be only a fraction of the $131,400 we calculated above.

Since costs vary widely, it pays to check out nursing home and assisted living costs in your (or your parent’s) area and shop around for insurance to find the best plan for you.

What about Medicare/Medicaid, you ask. You will need to factor the government insurance in, but here are the facts. What will Medicare/Medicaid pay for?
• For a retirement community which may provide meals and some transportation: Nothing.
• For help with activities of daily living (ADL), such as bathing, dressing, eating, medication: Nothing, except for some medication expenses. No professional training is needed to help with these activities, so these are not eligible under the government insurance plans.
• For medical care provided in the home: A large portion of the cost for a limited amount of time.
• For skilled nursing care: A large portion of the cost for a limited amount of time. Professional nursing training and skill are needed for the care.

Consider the LTC policy benefit as a pool of money on which you can draw if you need it. And statistics show that you will need money for long-term care. Consider LTC insurance as a savings plan much like your retirement plan.

Take some time to consider the financial options. Long-term care insurance may be just the thing to give you long-term peace of mind.

Blessings on your caregiving day!

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