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Long Term Care Insurance: Is it Necessary?

According to the National Fire Protection Association, during 2005-2009, roughly one of every 310 households had a reported home fire per year. If you are a homeowner, you very likely carry fire insurance, even though you could probably pay for the cost of rebuilding your home without insurance.

The Department of Health and Human Services has estimated that about 70 percent of people over age 65 will require some type of long-term care services during their lifetime and more than 40 percent will need care in a nursing home.

And yet, out of 312,417,659 people that live in the United States, only 8 million are covered by long term care insurance according to the American Association for Long Term Care Insurance. It’s a good bet that most all those people who are homeowners do have fire insurance.

So why do we insure our homes but don’t buy long term care insurance, when it seems pretty clear that our risk of needing long term care is so much higher than the risk of a house fire?

Denial could be one reason. Or, it could be that there is very little understanding about how long-term care costs are paid. What is not well known is that health insurance and Medicare does not pay for long-term care costs. Health insurance only pays for acute care (while you’re in the hospital) and very short periods of rehabilitative care. After that, you’re on your own.

Who pays for long-term care costs? You do. You pay from your own assets. You pay from your bank accounts, your stocks and bonds, and if necessary from the equity in your house. You pay until you are broke.

If home care averages $17 an hour, then the daily cost is $408 a day ($12,240 a month; $146,880 a year). If assisted living care costs $6,000 a month, then in a year, the cost is $72,000. And if nursing home care costs $8,500 a month, then in a year, the cost is $102,000. And, all of it is paid for by one’s own hard-earned money. Unless, of course, there is long term care insurance to cover some or all of the cost.

Medicaid (Maryland Medical Assistance) is a government benefit to cover nursing home costs for a person who resides in a skilled nursing facility, and who qualifies medically and financially. There are ways to protect some of a nursing home resident’s assets using the Medicaid laws. For example, if a nursing home resident is married, the Spousal Impoverishment Laws are available for the protection of the assets for the benefit of the spouse who continues to reside in the home property.

However, there is no Medicaid long-term care entitlement program available for persons who are not residing in a nursing facility. In Maryland, the Medicaid Waiver Program for Older Adults provides assistance to a person who stays in their own home, or to a person who resides in a participating assisted living facility. Unfortunately, the waiting list for the Waiver Program is more than 23,000 persons because it is not an entitlement program.

So, if you insist on receiving your care at home, you will either need to have enough assets to pay for that care, plan on owning a long term care insurance policy to cover those costs, or have many children who will agree to take care of you.

A good long-term care policy should provide enough coverage to cover most of the cost of care. In addition, the National Association of Insurance Commissioners (NAIC) recommends the following (taken from A Shopper’s Guide To Long-Term Care Insurance, pages 32-35, 2010, published by NAIC):

A long-term care insurance policy is not cheap. If you cannot afford the premiums and have limited assets, you should not buy it. However, if you have assets and income that will allow you to purchase a policy, and your goal is to protect some of your assets, then consider the purchase of a long-term care insurance policy.

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Boomers Resource Guide is a special supplement to the Senior Citizen's Guide