Long-term care is a subject that nobody likes to think about. Yes, Medicare and supplements will pay for illness and hospitalization costs. But they don't pay for care at home, or in assisted living, when you can no longer do basic activities such as bathing, dressing, toileting, and dining. Will your children come to help? Or, if you are an adult with aging parents, are you prepared for Mom or Dad to move into your home?
That's where Long Term Care Insurance comes in. Here are five things you should know:
1. The odds are likely that you will one day need some form of "custodial care." Not all of the people who need custodial care are elderly, since accidents and diseases like Parkinson's or dementia can afflict at any age, but the lifetime probability of becoming disabled in at least two activities of daily living or of being cognitively impaired is 68 percent for people age 65 and older, according to an AARP research report.
2. The cost of "custodial care" is expensive, whether given at home or in assisted living or nursing home. According to Genworth, one of the largest Long Term Care insurance companies, the average annual cost of a private room in a nursing home in 2015 is $91,250. And the average cost of a home health aide for 44 hours a week (not round-the-clock care) is $45,760. Could you afford that for years?
Genworth's Long Term Care Calculator lets you see specific costs in your state, and also gives you costs for different types of long term care.
3. Traditional policies require annual premiums. Traditional long term care policies cover care for a fixed period of time, for a certain dollar amount, and may adjust for inflation. But you have to pay that premium every year -- and it may rise over time. (Recent huge price increases have now adjusted earlier policies, so future increases are likely to be moderate.)
For example, a 60 year old, single woman would pay an annual premium of $3,945 for a policy covering 3 years of care, at $200/day, with simple inflation protection. But if she waited to get coverage until 70 and was still in good health, she'd pay an annual premium of $7,921 for the same policy.
Is it worth the cost? At age 80, the 60 year old buyer will have $438,000 in benefits that she paid less than $80,000 for, (subject to class rate increases). And premiums stop when she activates the policy.
4. New "Combo" policies combine a cash deposit into a life insurance policy with LTC benefits. If care is not needed, the policy owner can withdraw cash -- or leverage the deposit into life insurance for beneficiaries. For example, that same 60 year old woman could put $100,000 into such a policy and receive $343,287 in LTC benefits at age 80. However, if she doesn't use the care benefits, her beneficiaries would get $111,622 at her death.
Check combo policies with your agent -- or from Pacific Life, OneAmerica, Lincoln Financial, or Nationwide.
5. Timing is everything. It's best to buy LTC policies in your late 50s or early 60s, while you are healthy and can qualify. But you can buy even if you are older, although costs are higher. Major long term care insurance companies include: Genworth, Northwestern Mutual, MedAmerica, MassMutual, and Mutual of Omaha.
Plan now, and you can sleep well. That's The Savage Truth.