Long Term Care Insurance

Traditional wisdom dictates that the prudent consumer purchase a long term care policy sometime in their 50s or certainly when they turn 60.

Long term care insurance LTCI, according to my wife who was a hospital case worker, is a tertiary product that kicks in after private health insurance and Medicare are exhausted. If an individual is going to need assistance with Activities of Daily Living (ADL) such as dressing, bathing, eating, toileting, getting in or out of a chair, or walking for an extended period of time, LTCI will pay for this kind of care. Depending on the policy, this care may be limited to a nursing home or may allow the patient to receive care in an assisted living facility or even their own home.

LTCI policies generally are defined by their waiting period, maximum daily rate, their total cap, and inflation protection. Obviously, the longer the waiting period and the lower the inflation protection number (5% compound inflation protection is recommended) the lower the premium. Flexibility costs. The more options covered nursing homes, assisted living facilities, home care, or even home care by relatives, the greater the cost. The amount of coverage required is highly dependent on location. A nursing home in a desirable urban area, say San Francisco is going to cost much more than a similar facility in Travelers Rest, South Carolina.

If you actually need LTCI, due to a diagnosis of an illness or conditions such as AIDS or Alzheimer’s, be assured it is too late you will not qualify. In the United States, if you are considered financially destitute according to current law, Medicaid will provide medically necessary services to patients who need nursing home care. However, Medicaid does not generally provide coverage in a home or assisted living facility. If you find yourself or a loved one in such a situation, work with the hospital social worker or case manager to develop plan that makes sense. Government regulations are so complex and arcane that a new cottage industry providing private case manager services is developing. If you can afford this kind of consultant, it might be worth the investment.

Since I turned 60 last year, I spent a considerable about of time researching long term care insurance. What I found was not encouraging. Prices for long term care insurance have undergone a drastic increase over recent years. More importantly, policies that had no cap can no longer be purchased. One of the students in the Financial Peace University class I coordinated had an elderly relative in a nursing home. Unfortunately, she has been in that nursing home for many years. Fortunately, she has a long term care insurance policy that will continue to pay until she dies. You can no longer purchase that kind of coverage. Long term care insurance is sold in increments of $100,000. From what I have read $300,000 is the recommended sweet spot. I can self insure at $100,000. To purchase $300,000 policies for both my wife and myself would be a deal breaker. I simply could not afford to retire and pay for that kind of coverage.

My solution was starting a separate joint account with Vanguard. I plan to invest an amount roughly equal to the annual premium for a single policy in a pair of hybrid bond/stock mutual funds that will give me a 50/50 split between investment grade bonds and conservative dividend paying stocks. If we do not need to tap this fund until our mid-eighties, we will be OK. If we need it tomorrow, with or without $300,000 in long term care insurance, we would be financially ruined.