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Long-Term Care of Your Personal Finances

by Christine S. Fahlund

Your odds of needing long-term care—care to help you with the activities of daily living—are seven out of 10.

According to the 2011 handbook of the American Association for Long-Term Care Insurance, 70% people over the age of 65 will require long-term care, either at home or in a facility. And with medical advances keeping people alive but not necessarily healthier longer, the odds may change—and not in your favor.

Don’t be lulled into a false sense of security because you have good health insurance or by thinking you can rely on Medicare. Long-term care isn’t the same as care during an illness or for an emergency medical condition, so it isn’t covered by health insurance or Medicare. Long-term care is defined as assistance with the activities of “daily living”: bathing, continence, dressing, eating, toileting and transferring. Most policies today also cover cognitive impairment (such as Alzheimer’s disease).

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Christine S. Fahlund , Ph.D. and CFP, is a senior financial planner and vice president of T. Rowe Price Group, an investment management firm based in Baltimore, Maryland.


Discussion

Nancy Bryant Cfp from Maryland posted 3 months ago:

Great introduction, Christine. Like the fact that it is unbiased!


Victor Bradford from Colorado posted 3 months ago:

Excellent article.
Another consideration is the expected life for those who enter long-term care facilities. For example, our insurer told us males who entered a long-term facility were expected to live just over three more years after permanently entering a facility, so it seemed more sensible to buy a (far less expensive) policy rather than one with unlimited coverage. Of course, this life expectancy may change over time, too, and any prediction of the future so far ahead is very uncertain.


Victor Bradford from Colorado posted 3 months ago:

Excellent article.
Another consideration is the expected life for those who enter long-term care facilities. For example, our insurer told us males who entered a long-term facility were expected to live just over three more years after permanently entering a facility, so it seemed more sensible to buy a (far less expensive) policy rather than one with unlimited coverage. Of course, this life expectancy may change over time, too, and any prediction of the future so far ahead is very uncertain.


Doug from New York posted 3 months ago:

If you get a limited-duration policy that means you're taking on the "longevity risk" yourself. Note that if males have shorter lifespans, on average, insurance companies ought to be able to sell lifetime long-term-care plans for them cheaper, while making the same profit. (Insurance companies are in the business of taking this sort of actuarial risk!)


Paul from Connecticut posted 3 months ago:

This is the first LTC article I have read--in a long time--that notes the importance of a non forfeiture feature such as reduced paid up or extended term (both features I have). In the event of large rate increases or inability to pay for premium after many years of payment--this is a wise 'protective feature'. NF allows you to continue coverage without further payment of premium at the very time you need the protection most. Paul


S Mahadevan from Michigan posted 3 months ago:

Using the State as a partner is a good idea. Can you tell which States in US offer this program?


Henry Hanau from New York posted 3 months ago:

Articles I read a while ago by AARP and also from Consumer Reports suggests that LTC is most useful to those who have between 1/2 million and 1 1/2 million in liquid assets.
Those with less will be on medicaid.
Those with more are best self insured.
Please comment. Thanks


Charlie M from New York posted 3 months ago:

Approximately 40 states participate in the Partnership program with reciprocity in most cases.
Search on " partnership long term care" and you should find a link pretty quickly. NY's page is http://www.nyspltc.org/ for example.

Note that the reciprocity is at the time you 'invoke' Medicaid Extended Coverage (MEC)(when your LTC policy runs out of money) not at the time you take out the policy or start drawing on it. So it may be necessary to move back to your LTC policy home state to get MEC benefits.
----
NY offers a Total Asset program that fully protects your assets from Medicaid (but not your income) that you should check out for your state.


Nicholas Kierniesky from Pennsylvania posted 2 months ago:

It is really hard to get an INDEPENDENT set of statistics about those in various forms of LTC.70% over the age 65 prediction does not tell us very much about the need for LTC insurance. This number is provided by the industry. ASSUMING it is an accurate prediction: 1) What % of this group is on Medicaid, since health covaries with income level? 2) What are the duration statistics DETAILS? How long do individuals actually stay in LTC before return to regular care or death? One year is a lot different than 3 years. 3)Comparing LTC insurance to other insurances is very misleading. Home insurance, for instance, is relatively cheap, and can be stopped, and restarted. Not so LTC. The best LTC "complete" coverage (like replacing a home) would cost thousands of dollars over decades. 4) How many insurance companies have stopped LTC insurance? What's the prediction of this happening? Finally, 5) What's a middle income couple in their 40s or 50s with preexisting conditions to do? Save and pray?


Harry Ploss from Texas posted 2 months ago:

I am a Professional Actuary, a Fellow of the Society of Actuaries, and developed LTC policies from 1989 to 1993. If these policies have loss ratio of 65% and there is a 70% chance you file a claim. It makes no sense to buy a policy. If you have less than $200,000 net worth, you will spend down and qualify for veterans benefits or Medicaid.

If you have more, you have a policy with outdated definitions and benefit amounts when you are 85 and bought the annual premium policy 20 years ago when 65.

Better is save the money in an IRA, invest 60/40, get the tax deferral benefits and appreciation over 20 years on all your money, not just 65%. Further if you need Assisted living and private care givers, instead of LTC you can spend you money as you need to, and not argue with Some Insurance company about definitions and coverage. A lot of Home Health Care and Hospice is covered by Medicare.

Over the next 20 years there will be a lot of changes in Government coverage and private facilities to make any Insurance policy obsolete for your needs.

Your money is better spent on an Elder Care attorney, than Insurance Agent Commissions.


Dan G from Indiana posted about 1 month ago:

The article makes a good point about effect of long term care on how you invest. That is, if you self insure you'll need to keep more assets in cash and short term assets to cover ltc risk.

However, if you're fortunate enough to be in position to self insure, e.g. >2m in assets, can't you use regular life insurance to 'back-end' insure against having to liquidate assets for ltc cost in a down market? I look at cost of a 20 or 30 year term life policy for a healthy 50 year old and that seems a less costly and more effective means of insuring than a long term care policy. When the 50 year old hits 70 or 80 (end of term policy) asset allocation will likely have adequate cash and short term assets to cover ltc.


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