Long Term Care Insurance can be expensive so many retirees choose to go without it.
But is this a good idea?
Here are some things to consider:
- What is a Long-Term Care Expense?
- How Much Does it cost to cover Long Term Care Expenses out of pocket?
- Does Medicare Cover Long-Term Care expenses?
- Does my health insurance cover Long-Term Care expenses?
- Why do so many people NOT buy Long-Term Care Insurance?
- When is it a good idea not to buy Long-Term Care Insurance?
- Who should be the most concerned about Long-Term Care Insurance?
Before we get into answering all of these questions if you have not watched my FREE Retirement Video about How To Avoid Going Broke In Retirement While Securing Your Nest Egg, then please CLICK HERE NOW!
What is Long-Term Care Expense?
Long Term Care Expenses occur when an individual has a chronic illness that no longer allows them to take care of certain daily needs without assistance.
Here is the typical list of what are often referred to as Activities of Daily Living:
The trigger for most Long-Term Care benefits is that you need help with two of the above ADL’s.
Most of the time Cognitive Impairment is also a trigger for benefits all on its own.
An individual could find himself in this position due to old age, but old age is not required.
Other things that could lead to a Long-Term Care claim are:
- A Bad Accident
- A Stroke
- Lou Gehrig’s Disease
- Muscular Sclerosis or MS
- Degenerative Diabetes
- Rheumatoid Arthritis
- Spinal Injuries
How Much Does It Cost To Pay For A Typical Long-Term Care Expense?
How much it will cost depends a lot on the type of care you will need and what part of the country you live in.
At the time of this writing and in my part of the country the annual cost of care for a Private Room in a Nursing home is $82,125
If you would like to see a breakdown of costs in your area one reliable web site, you can go to is https://www.genworth.com/aging-and-you/finances/cost-of-care.html
Does Medicare Cover Long Term Care Expenses?
Medicare does pay for some Nursing Home Care costs but what they pay is VERY limited and it was never intended to pay for any true Long-Term Care costs.
Here are the basic Medicare rules in order to cover a Nursing Home Care Expense:
- Must be transferred from the hospital after a 3-day stay.
- Must be expected to recover
- Must be a Skilled Nursing Care Facility
- Cost Covered 100% for the first 20 days
- After 20 days a Co-Pay applies. ($170.50 per day out of pocket until day 100) (2019)
- After 100 days NO COVERAGE
- The average length of stay in a Nursing Facility is a little over 2 years or 835 days*
As you can see it is NOT wise to rely on Medicare to pay for your Long-Term Care needs.
Does My Health Insurance Cover Long-Term Care Expenses?
The short answer is NO it does not. But why?
The answer is health insurance and Long-Term Care insurance are two different coverages for two separate reasons.
Health Insurance is for:
- Medical Bills related to a sickness or injury
- It Pays for Doctors, Hospitals, Office Visits, Medical Procedures
- Recuperation or Recovery is generally NOT covered.
Long Term Care Coverage is for:
- The need for assistance
- When you cannot perform normal activities of daily life
- When you need help to function
- Maintenance not treatment
Because these are clearly different circumstances, they require different plans.
Why Do So Many People NOT Buy Long-Term Care Insurance?
Lots of good reasons actually!
For one thing, It can be very expensive.
This is enough of a reason for preventing many people from buying it.
The cost of the policy is generally not a fixed cost so it can start off expensive and then increase.
As the cost of the actual care has been rising so have the costs of insuring against it.
For this reason, some Insurers have filed with the States they do business with to allow them to increase the premiums and the States have been saying yes!
So even if you do the right thing and protect yourself there is no guarantee you will be able to afford the cost down the road when you need it most.
Use It Or Lose It!
If you do buy Long Term Care coverage and then you die in your sleep your family does NOT get a big refund check from the LTC company.
All the money you spend on premiums is lost to you; it goes to the insurance company to help them offset the costs of the people who do end up needing it.
Many people have a problem paying for something they may never need.
When Is It A Good Idea NOT To Buy Long-Term Care Insurance?
The truth is not everyone is a good candidate for Long Term Care Insurance.
If you do not have much income and you do not have a lot of assets to lose then if you need coverage you will likely qualify for Medicaid.
Medicaid will pay for your Long-Term Care expenses, but you need to spend down almost all of your assets first.
In Illinois, if you are married you get to keep about $109,000 as the dependent spouse.
If you are not married, you must spend down all of your assets up to your last $2,000.
The other group that does NOT need Long Term Care are the Wealthy.
Some wealthy people have enough liquid investible assets to pay for Long Term Care expenses out of pocket and still leave their spouses in good shape.
The rule of thumb used to be that you would need to have about $1.5 Million saved before you could “self-fund” this risk. *
More recently due to the growing cost of care and low-interest rates the amount of wealth you should have to “self-fund” is more like $2.5 Million. **
So, what about the people right in the middle?
What if you are not broke enough to qualify for Medicaid?
And you are not wealthy enough to pay for it yourself without decimating your savings?
Then you may want to seriously look at ALL of your Long-Term Care Options!
Also, your wealthy people might not want to pass it up so fast either.
Many wealthy people see the benefit of pooling their risks and using the leverage an insurance company offers to pay these high costs with discounted insurance company dollars.
Who Should Be The Most Concerned About Long-Term Care Insurance?
It is probably no surprise that the group that is most affected is the Middle Class.
You are not poor enough to qualify for Government help.
You are not wealthy enough to pay it out of pocket.
You need to have a plan or everything you worked hard for all of your life could get wiped out with just one Long Term Care health issue.
The good news is there are lots of creative ways to leverage assets and low-cost insurance products to protect yourself.
Keep an eye out for future articles where I will cover some of these ideas with you.
In the meantime, if you have not viewed my FREE Retirement Video please CLICK HERE NOW to learn How To Avoid Going Broke In Retirement While Securing Your Nest Egg!
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