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Making Sense of Long Term Care

As Americans age — the first baby boomers soon turn 60 — and medical advancements spawn longer lives, the need for long term care is skyrocketing. Long term care insurance provides financial protection by covering costs for nursing homes, assisted-living centers and in-home caretakers who help seniors with health needs and daily living activities like dressing and bathing. Some plans also cover community adult day-care, which provides social opportunities and on-site nurses to complement at-home care or ease a recovery period. Most of these costs are typically excluded from health insurance coverage, including Medicare.

The U.S. Department of Health and Human Services estimated that in 2007 about nine million Americans over the age of 65 would need long-term care. By 2020, they predict this number to jump to 12 million. You may or may not ever need long term care. However, planning ahead may protect your family's assets from the considerable costs of providing care.

Who should buy long term care coverage?

It's up to you to decide whether you want to lower your future financial risk by buying long term care coverage now. Unfortunately, many people decide whether or not to purchase coverage based on their willingness to pay the premiums, not on need. The decision should be based on your personal circumstances and your potential to rely on daily care in the future. Ask yourself how you want to live as you age. Is your family prepared to care for you — physically and financially?

How do I pay for long term care?

If you have enough assets to cover the potential hundreds of thousands of dollars for long term care, you may decide to "self-insure" or pay the cost of care yourself. Regular health insurance and Medicare generally do not pay for long term care. If the care lasts more than a few years, you may deplete your assets trying to pay for it. That might qualify you for Medicaid, which does pay for long term care services, but decide if that is the circumstance you desire. You need to weigh the cost of purchasing long term care coverage now against the future risk of depleting your assets or tapping your retirement nest egg to cover the costs.

I'm in perfect health, why should I plan for long term care?

It's a question of risk. A study by the U.S. Department of Health and Human Services reported that people who reach age 65 have about a 40 percent chance of entering a nursing home at some point. Roughly 10 percent of those who enter will stay five years or more. Even if you're convinced you won't need nursing home care, there are costs outside of medical bills that long term care can cover.

When should I consider purchasing long term care coverage?

When you start planning for retirement, consider how you'll handle long term care. The average cost of a nursing home stay is more than $50,000 per year but can be much higher in some areas, according to AARP. Compare that with drastically lower long term care insurance premiums, averaging $564 a year at age 50 and $1,337 a year at age 65, according to the Health Insurance Association of America. However, buy earlier rather than later: average premiums rise to $5,530 a year by age 79 — and that's if you're still healthy enough to get coverage.

How can I buy long term care insurance?

Many insurance and health care companies offer long term care coverage policies. Find out if your health benefits provider offers optional long term care coverage by visiting the company's website or talking to your human resources manager at work. If long term care coverage is not available, policies can be purchased on an individual basis. Talk to a CERTIFIED FINANCIAL PLANNER^TM (CFP^®) professional about outlining a plan that's right for you and your family. The Financial Planning Association (FPA^®) can connect you with a CFP® professional in your area.

My situation is unique. How can I be sure the decisions I make are right for me?

Long term care policies should be customized. Here are some tips from the Financial Planning Association:

• Couples should purchase the policy for the older spouse to preserve their savings, if they can afford to buy coverage for only one spouse.
• If you're buying policies for both spouses, use the same company; you'll probably get a discount, just as you do for buying homeowners and car insurance from the same carrier.
• If you're divorced or widowed, long term care coverage is even more important to preserve your independence - experts say women are 50 percent more likely than men to need long term care since they often outlive men by several years.
• If you have money saved for your health in retirement, long term care policies don't need to be able to cover all your expenses. Work with your CFP^® professional to customize your plan.

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