Why Do I Need A Long Term Care Insurance Policy?

Even a casual search on the internet churns up a plethora of articles that both laud and vilify long term care insurance policies and companies. On the one hand, the high cost of care (home health care, nursing home or assisted living) in conjunction with current laws mean that most of us have to do something to cover this cost or risk going bankrupt in our senior years to pay for health care.

On the other hand, the product is not the cheapest insurance you will ever buy. Combined with the rate increases long term care insurance policy holders have seen in the last few years and the challenges families can have at the point of claim, it is no wonder that there are articles panning this product.

As always, the truth for this product lies somewhere between the two extremes….

This is the first in a 3 part series that will address 3 simple questions:

(1) why buy,

(2) what to look for, and

(3) how to get a claim to pay.

The Up Side: Why We Need Long Term Care Insurance Policies

Since Health Care Reform became a reality, everyone is wondering, “How is this going to work?” Because the changes have been so far reaching, many people think the new Health Care Reform (commonly called “Obama care”) may actually eventually address this very real need. In my expert opinion, nothing could be farther from the truth.

First, the current health Care Reform has nothing in it that addresses long term care costs. In the early stages there was a small piece that attempted to do this (called the CLASS ACT) – but it has since been eliminated because it wasn’t found to be actuarial sound, meaning it had both demographic and economic problems that appear insurmountable.

It’s math, for one thing…

The average cost of care in the USA today (AALTCI data) is $60,000 annually to $75,000 – the variance is geographical with some areas being much higher than others (see the Cost of Care map at www.longtermcare.gov for current survey data by state).

The current estimates are that these prices will double every 15 years with inflation at 5%.

The table below identifies the projected cost of care. For the average 50 year old today whose life expectancy is in the 80s, the cost is expected to double twice by the time that person needs care. If the cost is 60K today, by age 65 it would 120K and age 80, it would be a mind boggling 240K per year to pay for a nursing home.

The numbers grow exponentially. For those who think this is an unreasonable expectation, I would remind them at how fast the price of milk or gas has gone up in their lifetime. This doubling rate, if anything, is on the low side.

Data suggests that 95% of seniors will be in care less than 3 years and 97% less than 5 years. So, on math alone, we have to plan a minimum of $360,000 per person to pay for the costs of care for 3 years. This does NOT include medical expense for the “in-care spouse” OR living expenses for a well spouse who is still maintaining a home (not to mention his or her medical expense!). When tallied up, the real estimate is that most individuals need to have roughly $750K set aside to cover the costs of medical and personal care as they age – and couples need 1.5 million plus.

If we expect the government (which really means tax payers) to cover this cost, we have to be prepared for what this will mean in the form of tax increases and/or debt increase.