A short while back Chris Crumpacker wrote an article about long-term care insurance.
A short while back Chris Crumpacker wrote an article about long-term care insurance. I would like to add a little emphasis to what he wrote.
The most financially devastating event I have seen in a couples' lifetime is when one or both of them require some form of long-term care. By long-term care I mean requiring in-home assistance, being in an assisted-living facility or a nursing home. In such cases, a nest egg of a quarter of a million dollars can disappear in a few short years.
We all feel we are insurance poor. So now what? We need another kind of insurance? Besides, long-term care insurance is expensive! Well, how about if we look at it terms of daily cost.
There are three ways to pay for long-term care. One is out of our own pocket; another is long-term care insurance; or lastly, the state of Kansas through Medicaid.
Unfortunately, for Medicaid to kick in, you have to spend down your assets first so you are basically broke. If Medicaid does foot the bill for your long-term care, the state can also put a lean on your property to help repay the cost of your care when you and your spouse finally depart this world. It's not really a good option if you have any assets at all.
Don't count on your health insurance or Medicare either. They pay for the hospital stays, doctor visits and short-term recuperative care. They may also pay for short-term care in-home if you are house-bound. They typically don't pay for the care of long-term, chronic conditions when your condition will not improve. Only long-term care insurance or Medicaid does that.
Some extremists out there might say, "well, if that ever happens to me, I'll just shoot myself" but what if they get Parkinson's disease? Then they may shake so bad they will miss. And if they get Alzheimer's, they will forget where they put the pistol!
So what would be the cost of long-term care insurance for me? Well, for someone in there late 50s, a long-term care policy might run about $2,500/year per person which should provide at least three years of benefits. A good policy should cover in-home care, assisted living and nursing home care. It should also have an inflation rider. The cost for that policy in today's dollars will be just under $7/day or lunch at McDonald's. However, if you went into a nursing home costing $60,000/year (2011 MetLife Market Survey of Long Term Care Costs for Kansas) and paid for it out of pocket, it would cost you over $165/day! That's a lot of Big Mac's!
Now here comes the scary part. Typically, we don't collect benefits for another 20 plus years and the cost of care just keeps going up. Long term inflation is around 3 percent, however, inflation rates for medical costs are closer to 5 percent. The cost of that nursing home at 5 percent inflation over 20 years could grow to just under $160,000/year. If you paid for that out of pocket, it would cost you just over $436 a day! That's a big family meal for eight at Ruth's Chris Steakhouse everyday with a very large tip.
Now if they had purchased a long-term care policy with inflation protection they would continue to pay their annual premiums and the inflation protection should increase their benefit each and every year. On the down side, long-term care insurance premiums do increase occasionally (not just for you but for the entire class or policy group) and the long-term rate of inflation may exceed the inflation protection in your policy.
The average stay in a long-term care facility is three years. In 20 years that could total almost $500,000. And that's only for one spouse. With no long-term care insurance to help pay those costs, there goes the retirement nest egg. If one spouse remains at home, they will be broke and on Medicaid.
In the next article I will continue my discussion of insurance.
Previous articles are posted on my web page at http://theretirementexperts.us/. If you would like to comment or make any suggestions, contact me at larrymartin@ theretirementexperts.us or call at 651-4321.
Larry Martin is a registered investment advisor offering advisory services through Main Street Advisor, LLC (MSA). The opinions expressed in these articles may not represent those of MSA. 1407 Main Street, Hays, KS 67601. The Consultants Financial Services, LLC and MSA are not affiliated.