Most people won’t object to paying for most types of insurance: homeowners, health, life, auto, etc.
While most people see a need for long term care insurance, once they receive a quote and see how much it actually costs, they are immediately turned off.
But should the rate of long term care insurance be such a deterrent?
The scary reality is that there is an overwhelming likelihood that you and I will both need some sort of long term care in our lifetime.
How much of a chance? According to the U.S. Administration of Aging, over a 70% chance.
That means you have a greater chance of needing long term care than Shaquille O’neal has of making a free throw. How scary is that?
The purpose of this post is two-fold. First, to give you a sense of how much long term care may cost in the future. Secondly, to give some real life long term insurance quotes to help illustrate how much it may cost you.
But before we get into cost and quotes, let’s first take a look at some “need-to-know” information.
Why Long-term Care Insurance has Become SO Important
A generation or two ago long-term care wasn’t even on most people’s radar screens. But increases in both cost and longevity changed all that.
On the cost side for example, it cost only $700 per year per person to stay in a nursing home in 1950. By 1969, the cost had risen to $5,300. That was a more than sevenfold increase in nursing home care costs, but it was still very affordable based on income levels at the time. Today, the cost to keep someone in a nursing home for one year is about 15 times higher than it was in 1969 (see current costs below).
But that increase in longevity is also raising the chances of spending at least some part of your life in a nursing home. Remember that the numbers above are medians – which means that half the population will live longer. That’s the group most likely to experience a nursing home stay.
However average lifespans don’t tell the whole story. According to the Social Security Administration, the average 65-year-old man can expect to live to be 84.3. The average 65-year-old woman can expect to live to 86.6. This gives an even better idea why nursing home stays have become so much more common in recent years.
Protecting Your Financial Assets
This is a long-term care insurance issue all by itself. The fact of the matter is, since long-term care is not covered by either Medicare (beyond 100 days) or by private health insurance, the only way to cover the cost is to pay it out of personal financial resources. That is, if you don’t have long-term care insurance.
Now if you’re a multi-millionaire, or you expect to be one before you retire, the prospect of paying well into six figures for nursing home care may not bother you much. But if you have a more modest portfolio, say less than $2 million, several hundred thousand dollars could seriously reduce that balance.
It also has to be considered that while the typical long-term care stay is expected to be less than five years – which can still run upwards of $500,000 in total – some people do need more time. A 10-year stay can run upwards of $1 million, especially if you live in a high cost area.
That opens up two important questions:
- How will the non-institutionalized spouse survive while the other is in a nursing home? And…
- How much of your assets do you plan to leave to your heirs?
The point is, when a person goes into nursing home care your financial situation becomes completely open-ended. All you know is that your annual cost-of-living will explode suddenly. The only question from there is, how long it will last?
A multi-year stay in a nursing home facility could potentially bankrupt even a person who has substantial retirement assets. Long-term care insurance is the best protection against that outcome.
When Long-term Care is Considered to be Necessary
Some people may believe that nursing homes can be avoided by having care provided by family members. In most cases however this is wishful thinking. The level of care may require that the family member take on what will become a full-time occupation.
By the time a person reaches the point of needing to be in a nursing home, they need ongoing assistance with what are referred to as activities of daily living, or ADLs. Examples of ADLs include:
- Bathing – The ability to clean oneself and perform grooming activities like shaving and brushing teeth.
- Dressing – The ability to get dressed by oneself without struggling with buttons and zippers.
- Eating – The ability to feed oneself.
- Transferring – Being able to either walk or move oneself from a bed to a wheelchair and back again.
- Toileting – The ability to get on and off the toilet.
- Continence – The ability to control one’s bladder and bowel functions.
Nursing home care is generally determined to be necessary once a person reaches the point of not being able to perform at least two of the six ADLs. However, it’s usually true that if a person loses the ability to perform just one, they’re equally unable to perform several others, or even all six.
There’s a second group of activities, referred to as instrumental activities of daily living, or IADLs, that include inability to perform common personal and household tasks:
- Using the telephone
- Managing medications
- Preparing meals
- Housekeeping
- Managing personal finances
- Shopping for groceries or clothing
- Accessing transportation
- Caring for pets
In addition to the fact that many people in nursing homes need help with day-to-day activities, many also require ongoing medical treatment. That’s best handled in a skilled-nursing care facility, as a family member is unlikely to be able to provide those services.
A family member might be able to provide help with IADL services, and perhaps even on a part-time basis. But if the person is in need of care for ADLs, the task is much bigger. It will usually require not only full-time care, but also a live-in situation. That’s because ADLs are the kinds of activities that happen 24 hours a day, seven days per week.
While you may able to hire people for in-home nursing care, the cost is generally comparable to what it is for an actual stay in a nursing home. That’s because care will need to be provided to cover three 8 hour shifts each day, and virtually every day of the week.
Won’t Medicaid and Medicare help with Nursing Home Costs?
Let’s start with Medicaid. Medicaid can cover nursing home care, but it’s not without its limitations. Some of the disadvantages include:
- You have to be broke – That means that you will have to draw down your assets before resorting to Medicaid.
- Not all nursing care facilities accept Medicaid patients – Medicaid reimbursements to providers are notoriously low. As a result, many facilities do not accept Medicaid patients. This will limit the number of nursing care options available.
- Care can be downgraded once you shift to Medicaid – There have been reports of people having their nursing home arrangements degraded under Medicaid. For example, they may be moved from a private room to a semi-private room, or even to a ward.
- The Medicaid application process is notoriously long – You can be in a facility for several months before your application is approved. And if it’s denied, you have bigger problems.
- Limited medical care – Since Medicaid doesn’t cover all of the procedures that a health insurance policy would, such as experimental therapies or treatments determined not to be entirely necessary, there can be a reduction in the level of medical care.
Medicaid is certainly an option if you have little or no money. But if you have investments and other assets that you are looking to preserve in the face of high nursing care costs, Medicaid will not be an option for you.
Medicare Coverage of Nursing Home Costs
Medicare does provide coverage for nursing home costs, but only on a very limited basis.
They also have stiff requirements. You can’t just check into a nursing home because you are no longer able to care for yourself. Your nursing home stay must be preceded by a minimum three-day stay in an emergency room, and transfer to a nursing facility must be deemed medically necessary, but not just because you can no longer care for yourself.
How Much is Long Term Care?
That’s the million dollar question. MetLife did a survey in 2009 of estimated long term care costs. Based on their findings the average annual cost of nursing home care is now $79,935 or $219 per day. That’s up 3.3% from 2008. The average nursing home stay is about 2.5 years, which means you would need roughly $200,000 to pay those bills. That’s a little more than your DirecTV bill, huh?
What if you had to pay the entire long term care cost of pocket? Would your retirement nest egg withstand such a huge blow? Medicaid may help, but that’s only when everything is depleted. The clear solution is long term care insurance.
How expensive is Long Term Care Coverage?
Annually, it typically costs about as much as a cheap used car. According to the MetLife survey: in 2009, a 52-year-old federal employee could pay $1,524 annually for an LTC policy with a $200-per-day benefit for three years and a maximum lifetime benefit of about $200,000.
Does $1,500 or $1,800 or $2,100 annually (just to throw out a few numbers) sound expensive? These premiums are certainly inexpensive compared to the staggering bills you may face if the need for LTC enters your life. Yes, there is a chance that you may never need LTC coverage. However, with advances in medicine and healthcare, we may live much longer than we anticipate before we leave this world.
If you’ve ever had an experience where a loved one needed long term care then the cost is not an issue. A client of mine shared his story where long term care insurance saved his family from financial and emotional heartache.
Elder Law Attorney’s View
Suggesting how much long term care insurance one might need is tough because there are a lot of factors at work here. Much depends on the state you reside. Other factors include you current health, family medical history, and how much in investable assets you have. In addition to that, there are other variables to consider. The are four primary variables that must be considered when building an Long Term Care Insurance policy:
- daily benefit amount
- benefit period
- elimination period
- inflation protection
I decided to the seek the counsel of Tiffanny Sievers of S.I. Elder Law who advises her clients on elder issues. Here’s what Tiffanny had to say:
I typically suggest people get at least a 5 year pay out because the look back period for transfers is moving to 5 years. Although right now it is 3 years, it is going to be moving to 5 years, very soon in Illinois.
How Much of a Daily Benefit Do You Recommend For a Long Term Care Insurance Policy?
In Southern Illinois Nursing Home expenses range from $90 a day to $180 a day. Therefore I would say that the daily benefit should be no less than $100 a day and probably better somewhere around $120 a day.
How Long of an Elimination Period?
I would say 90-100 day elimination period. The reason for this is because Medicare will usually pay for the first 100 days and you want to your long term care insurance to kick in right after Medicare runs out.
How Much of a Total Payout Should One Consider When Purchasing Long Term Care Insurance?
Of course, the best plan would have no limits but something reasonable would be $200,000-$250,000 maximum payout. Like a term certain annuity, a good idea might be to make sure that your plan will pay the maximium daily benefit for 5 years.
For the most part, if you have a decent long term care insurance policy, you will not have to worry about loosing all of your assets to assisted living and or the nursing home. I recomend to all of my clients that are under age 70 that they at least try to get some coverage. You have a greater chance of becoming disabled than actually dying.
As you can see, there are many considerations that go into purchasing a long term care insurance policy. Thanks to Tiffanny for sharing her expertise!
Long Term Insurance Quotes
Long term care insurance is available through most of the best insurance companies that offer life insurance. So I started with the most popular among the well known providers.
While the MetLife survey provided some good general info on the actual cost of Long Term Care Insurance, I decided to contact one of the leading providers and request an actual quote on a long term care insurance policy. The Long Term Insurance quotes I requested were for a 50, 55, and 60 year old, respectively- all assuming to be in excellent health with no benefit for a spouse. As the below chart indicates the three constants were daily benefit amount, benefit period, elimination period, and policy limit. Let’s see what the results show:
| Age | 50 Year Old | 55 Year Old | 60 Year Old |
|---|---|---|---|
| Risk Class | Select | Select | Select |
| LTC Benefit Amount | $100 Daily | $100 Daily | $100 Daily |
| Benefit Period | 3 Years | 3 Years | 3 Years |
| Policy Limit | $109,500 | $109,500 | $109,500 |
| Elimination Period | 90 Days | 90 Days | 90 Days |
| Inflation Option | 5% Compound | 5% Compound | 5% Compound |
| Stay At Home Benefit | $3,000 | $3,000 | $3,000 |
| Total Annual Premium | $1,078.65 | $1,198.50 | $1,462.17 |
Long Term Insurance Quote Findings
Based on the findings we can derive some interesting information. First, that the total price on the annual premium increases by 11% by waiting to age 55 instead of 50. Second, the percentage increase from 55 to 60 is 22%. Thirdly, by postponing from age 50 to 60, there is a 35.6% in premium. Many baby boomers always wonder what the potential increase in premium might be by waiting, this should give some insight.
Disclaimer: You should not base these numbers as a true representation of long term care insurance premiums. This is just to be used as an example and you should consult a qualified licensed professional to give you an accurate quote based on your situation.
