How Much Long Term Care Coverage Do You Really Need?
May 2009
Before we examine how much of your assets you want to protect
against potential long term care costs versus paying premiums
for long term care insurance, let's talk about some common myths
and some very sobering facts.
MYTHS
- Medicare/Medicaid will cover my costs
- My children, relatives, etc. will take care of me
- I'm not going to need it
SOBERING FACTS
- Medicare covers medical costs and 20 days of visits by a medical
practitioner to check your vitals etc. According to recent government
announcements, Medicare will be bankrupt in 2017. That's 8 years
from now. Medicaid will cover nursing home or assisted living
but to qualify you must divest all assets save $2500 to bury
yourself. If Medicare is going to be bankrupt and Social Security
is slated to be bankrupt in 2037, does anyone believe that there
will be any Medicaid money left?
- Children and relatives are all well meaning but the emotional,
physical and financial burden of caring for an ailing parent
who is failing in health or mental acuity (Alzheimer's, senile
dementia) in addition to maintaining their own day to day lives
is overwhelming. At some point professional assistance will
be required to offset some of the burden.
- 18% of all people in assisted living/nursing home care are
working age adults under the age of 65 who have been paralyzed,
are in comas, or suffer some other debilitating illness that
precludes them from living on their own.
- Once a person begins the long term care process (adult day
care, home health care, assisted living or nursing home), the
average life expectancy of a man is 3.5 years and 6.5 years
for a woman.
- Modern medicine is keeping us alive longer which translates
to 73% of the current population will need long term care.
The average cost of a private nursing home facility averages $203
per day or $74,208 per year. Home health care costs are even higher.
The average home health care provider charges $18.50 per hour which
is over $400 per day for 24 hour in home care. These numbers are
from a study released by Genworth Financial in April of this year.
Long term care costs are increasing at a rate of 4% per year.
If you are 55 years of age today and need LTC at the age of
70, it is estimated that it will cost you $156,000 per year. At
age 80 it will have increased to $253,000 per year. That is $1.2
million for six years of coverage for the average woman. Does
your portfolio have the funds to cover these expenses.
Plans can be created to cover a minimum per diem amount ($150)
with a simple 5% inflation rider. the balance of the funds needed
to cover your expenses would be self-insured/self-funded from
your asset base. A Return of Premium Rider can be added which
would allow any premiums you paid into a plan to be paid out to
your designated beneficiary in the event you pass away before
using the policy. Payment plans can be accelerated by utilizing
payoff of the policy in a ten year period which means that you
pay a higher annual amount while you are still active in the workplace,
rather than paying for life and taking premiums out of assets
when you retire. Another option is to pay off the policy by age
65. Again you are ensuring that the plan is paid in full before
leaving the workforce. Inflation riders which obviously add cost
to the premium can be simple, compound or have an option called
future purchase rider which allows you to buy up to a higher per
diem amount at a specified later date without having to undergo
underwriting again.
Current Federal Tax laws allow LTC premiums to be deducted on
an annual basis. The amount of the deduction is a fixed amount
based on your age at the time of filing the tax return. The amount
of this deduction has been increasing over the years. Most states
allow premiums to be deducted either on a one time basis or annually
like the Federal government. Each state mandates its own rules
on deductibility of the premiums.
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