When Long Term Care Insurance Does Not Really Insure Long Term Care
A March 8, 2013 article about long term care insurance in the Wall Street Journal entitled “Can You Afford to Get Older?”, drew a useful distinction between good and bad long term care insurance policies.
While noting that “[a] good long-term care policy can cover a significant of [long term care] costs…[a] bad policy could cost you a small fortune in premiums for coverage so limited it is is essentially worthless”.
Suppose someone enters a nursing home who has long term care insurance. He or she is all set financially, right? Not necessarily. I have seen many instances in which someone has purchased a long term care policy, only to find that the policy’s coverage equals only a fraction of what the nursing home actually ends up costing.
Take the gentleman who ten years ago was farsighted enough to anticipate the potential of his requiring long term care in the future. However, he had limited means, so the policy he purchased paid at the maximum rate of $100 per day for three years.
Fast forward ten years later. The gentlemen enters a nursing home whose daily rate is $300 per day. This means that he has a shortfall of $200 per day, or $6,000 per month! He receives $1000 per month in Social Security, meaning that he has to use his savings at the rate of $5000 per month, or $60,000 per year. This will pretty much wipe him out in less than a year.
So he diligently paid premiums over ten years on a policy which failed to achieve his goal of protecting this assets from the costs of long term care. As the Wall Street Journal article pointed out, good policies–meaning those from solid companies, with realistic coverage including inflation riders, etc–can be excellent investments. However, policies which fall short of these and other essential features can be a waste of money and provide a false sense of security.
So if you already have a long term care insurance policy, a “reality check” is in order. A good place to start is at the Genworth 2012 Cost of Care Survey, which provides statistics on the average cost of home care, assisted living, and nursing home costs in each of the 50 States. Though as the expression goes “your mileage may vary”, the Survey at least puts you in the ballpark of current reality of the cost of long term care.
If you find that there is a significant gap between what your policy pays and the cost of care in your area, don’t panic. Rather, consult with a trusted and competent long term care insurance professional or with an elder law attorney regarding your options. For even a long term care insurance policy that falls short of the current cost of care generally has a place in a comprehensive asset protection plan.
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