Long Term Care FAQ
Q: What is long term care
Long term care is any type of care that a person needs whether at home or in a facility such as a nursing home or an assisted living community …
Q: Why are most people unprepared for the cost of an average long term care stay?
The average stay today is 3 years and the average cost in the Baltimore area (where I am based at, in other areas it will be different) is about $4,000 a month or $50,000 a year. Fewer than 20% of those that need long term care are able to cover the cost for just one spouse let alone both … The reality is that most people cannot save enough.
Q: What are the options?
- Those who are rich (w/more than $1,000,000 to $1,500,000 in liquid assets outside of real estate), can "self insure"
- For those who are poor (broke with less than $2,500 in assets and very sick) Medicaid or medical welfare will cover the cost of long term care
- For those caught in the middle, private long term care insurance is the most viable option
There are basically three options:
Q: What is long term care insurance?
Long term care insurance covers a person against the costs of home health care, community-based care (assisted living, etc) and of course nursing home care. It works in conjunction with Medicare or private health insurance.
Q: Will Medicare cover me?
Not for very long… For those that qualify, Medicare will pay up to 100 days of LTC. The average length of a covered stay in 1996 was 27 days. Besides, do you want to rely on the government? Remember also that they pay the full amount for only the first 20 days, after which you pay the first $81.50 a day.
Q: What are the odds that a person will need LTC?
- For a man over 65, the odds are 1:3 or 33% that he will need LTC in his life,
- For a woman over 65, the odds are 1:2 or 50% that she will need LTC in her life
According to a recent study published in the New England Journal of Medicine:
Women are more likely to need LTC because they live longer.
Q: Can everyone qualify for LTC insurance?
Unfortunately, no. All the money in the world can’t buy a LTC insurance plan. It takes a little good health as well. The best time to apply for coverage is when you are healthy. Your premiums will be lower and you will be more likely able to get coverage.
Q: How much does LTC insurance cost?
- Age
- Current Health
- What features you design into the plan (there are five variables in each plan)
Premiums are based on three factors:
Long term care insurance plans have level premiums and are guaranteed renewable. That means your rate is the same for the life of the plan.
Q: Isn't it cheaper to buy a policy when I am in my 60's vs at a younger age?
The answer is NO -- the insurance is always cheaper the sooner you buy it -- not only cheaper each year, but cheaper over the long run! Take a look at this table ...
| LTC Insurance Cost Comparison by Year | |||
|---|---|---|---|
| Age at Purchase |
Yearly Premium |
Years Until Age 84 |
Total Cost of Premiums Paid |
| 45 | $746 | 39 | $29,094 (39 x $746) |
| 50 | $954 | 34 | $32,436 |
| 55 | $1,255 | 29 | $36,395 |
| 60 | $1,719 | 24 | $41,256 |
| 65 | $2,580 | 19 | $49,020 |
| 70 | $3,723 | 14 | $52,122 |
| 75 | $6,734 | 9 | $60,606 |
As you can see, a person who got the coverage at age 70 would pay in a total of $52,122 which is $15,727 more than if it was purchased at age 55. This table also does not take into account that a person is very likely to have health changes through the years which obviously affect the premiums...
Q: Nursing home costs are high today, will they continue to go up?
No one knows for sure, but it is a safe bet that long term care costs will be more in the future than today. The following table highlights how much long term care could cost in the future if it only goes up by 5% per year...
| Future Nursing Home Costs Based On 5% Growth | |||
|---|---|---|---|
| Year |
Nursing Home Cost per Year |
Year |
Nursing Home Cost per Year |
| 1 | $36,000 | 16 | $74,844 |
| 2 | $37,800 | 17 | $78,586 |
| 3 | $39,690 | 18 | $82,517 |
| 4 | $41,681 | 19 | $86,638 |
| 5 | $43,760 | 20 | $90,972 |
| 6 | $45,953 | 21 | $95,521 |
| 7 | $48,245 | 22 | $100,296 |
| 8 | $50,652 | 23 | $105,310 |
| 9 | $53,185 | 24 | $110,578 |
| 10 | $55,843 | 25 | $116,109 |
| 11 | $58,640 | 26 | $121,918 |
| 12 | $61,576 | 27 | $128,003 |
| 13 | $64,651 | 28 | $134,404 |
| 14 | $67,889 | 29 | $141,120 |
| 15 | $71,278 | 30 | $148,176 |
Q: I've looked at a plan - which inflation rider should I choose if any?
Choosing an inflation rider is based on your age when you take out a policy and your life expectancy...
| No Inflation vs Simple Interest Inflation vs Compound Interest Inflation | |||||||
|---|---|---|---|---|---|---|---|
| Year | No Inflation Rider |
5% Simple Interest |
5% Compound Interest |
Year | No Inflation Rider |
5% Simple Interest |
5% Compound Interest |
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