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Most people can agree on one thing when it comes to insurance: No matter what kind we purchase, we really don't want to get our money's worth. Long-term care insurance is no different since no one wants to be cared for in such a personal way. But some of us will need this kind of personal care.

This week, I'll recommend some things to think about when deciding whether you need long-term care insurance. Next week, I'll write about purchasing a long-term care policy.

Assessing Need

As for when you need long-term care insurance, the easy answer is, the day before you are diagnosed with an illness or involved in a tragic accident that is going to leave you permanently disabled and in need of custodial care. But the reality is, not all of us will ever receive such a diagnosis or have such an accident. And if we do, there is little warning.

Maybe it would be easier to leave out the word "when" and simply ask, "Do you need long-term care insurance?"

Insurance policies work because there are a lot of people who pay premiums even though everyone who pays in will not benefit. Health insurance is a prime example. Everyone who has the Federal Employees Health Benefits Program Blue Cross Standard option pays the same premiums, yet there are some people who go to the doctor once a year for a physical and others who have had a heart transplant.

Insurance is usually purchased to cover a catastrophic expense for which it would be difficult, if not impossible, to save. For example, homeowners insurance would cover your house if it burns down and automobile insurance would cover against your brand new car being totaled in a collision or worse, injury to yourself or others as the result of a crash.

So, the question is: Can long-term care result in a catastrophic expense? If you have any doubt about this, read last week's column.

Your Choices

Without insurance, how will you pay for long-term care if it becomes necessary? Here are some of your options as well as some of the typical responses I hear from employees who attend my retirement planning seminars:

• You don't need to pay for care; you will rely on the assistance of family, friends, or neighbors.

  My advice: Consider last week's column.

• You will sell your house to finance care in an assisted living facility or nursing home.

  My response: But what if you like living in your home?

• You have savings that will be sufficient to pay for at least two years of care (about $150,000 in 2006 should cover two years in an average priced nursing home, but check the prices in your area as they could be higher).

  My thoughts: The drawback to this option is that there might be a spouse or someone else who is counting on those savings if you die before them. Also, you may need care for a longer period of time than you can cover with your savings.

• You are willing to use Medicaid funding to pay for your care.

  Things to consider: This means that you are willing to deplete your assets to poverty level and your income is insufficient to pay the monthly charges. Medicaid will pay for nursing home care for certain individuals, but does not cover in-home custodial care or assisted living facilities.

• Where I live there are plenty of services available to the elderly through various government organizations as well as volunteer groups.

  My advice: Check on this for quality, dependability and accessibility. Sometimes this goes just like the old saying, "You get what you pay for."

• I won't need long-term care because my family has a history of longevity with little need for assistance. My grandfather renewed his driver's license at age 94!

  My thoughts: OK. If that's the risk you are willing to take, I hope you inherited the same genes.

The other option is to purchase long-term care insurance. This type of insurance is more than just nursing home coverage. Most policies sold today can be used in the event of needing custodial long-term care or personal care in your own home or in an assisted living facility or adult day care.

Depending on the policy, this insurance can be used for purchasing modifications to your home to avoid moving, training a caregiver and making assisted living arrangements. All policies also cover most institutional care in a nursing home facility.

The Odds

What are the chances of needing custodial care? According to the Health and Human Services Department:

• About 40 percent of people will need long-term care at some point during their lifetimes after reaching age 65.
• Almost 50 percent of people age 85 and older may develop Alzheimer's disease, a disorder that often leads to the need for nursing home care.
• Younger people may need long-term care too, as a result of a disabling accident or illness.

Also, with people living longer, the need for long-term care increases. Life expectancy for Americans has reached an all-time high, according to U.S. mortality statistics released by the Centers for Disease Control and Prevention. Those statistics show life expectancy was 77.9 years in 2004, up from 77.6 in 2003 and 77.3 in 2002.

The gap between male and female life expectancy went from 5.4 years in 2002 to 5.3 years in 2003, and 5.2 years in 2004, continuing a trend toward narrowing since the peak gap of 7.8 years in 1979.

Next Steps

Here are a few interesting facts from the Federal Long Term Care Insurance Program. There were more than 210,000 enrollees as of June 2006, and there have been more than 1,700 claims filed in the four years the program has been in operation. The average age of an employee who has purchased a policy is 52 and the average age of a retiree who has purchased one is 64. It is clear that there will be many more claims in the future as the population of people enrolled ages.

The argument for buying long-term care insurance has been presented. Next week, I will address the actual purchase of a policy. What does it cost? What does it cover? When can/should I buy it? I also will save my list of resources for next week.

In the meantime, give this topic some careful thought and I promise to help you understand the features of long-term care insurance and how it is priced.

Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.

COMMENTS

• Long term care insurance is important. But, not just for people who are approaching retirement. Things can happen at any age as the article sort of points out. This article makes it clear that catastrophic insurance is important because of unforeseeable accidents and illness. But, like previous articles, it completely skirts around Federal Employees Workers’ Compensation. It is also a catastrophic insurance. It is insurance for unforeseeable accidents or illnesses that are work related. It is as important, if not more so, than long term care insurance. Work is where federal employees are most likely to suffer a catastrophic injury before they reach retirement age. How do they care for themselves and their families if a career ending injury happens? I want to see it addressed in these articles. I want it stated in writing that the author considers federal employees workers’ compensation to be as reliable as health care insurance or long term care insurance. If the author can't state that in good conscience, than what are the options for federal employees to protect themselves and their families? Robert M Posted August 4, 2006 8:41 PM
• Long-term care insurance is necessary because of the breakdown of the family and the care provided elders by younger family members. You seem to ignore this in your comments other than some of us might rely on family and friends. My parents and my wife’s parents stayed in our house and were lovingly cared for -- one for three months and another for five years. We had several changes to our life style but overall gained from the experience tremendously. Don't think it’s a party because it was a lot of work. You have to take care of them and you have to make some investments in equipment to make the job easier. My kids have been told over and over that as we get too old we are going to live in their houses -- usually the basement. That is why we are so interested in them having well designed finished basements! Now the kids even talk about when we come to live with them and how they need to design renovations to accommodate our move in. I think I will forego long-term care insurance and give money to the kids to design for the day I move in. If you do not have a family that is local or you do not want to move in with them, you better buy long-term care insurance! I was there Posted August 4, 2006 7:59 AM
• I just wanted to express my sincere thanks to Tammy Flanagan for not only this article, but for every article she has written and that I have seen in the recent past! As retirement approaches for a lot of us, I know I don't stand alone in recognizing the wealth of information she has provided. I especially appreciate her sharing of personal information in order to help us make important decisions of our own. Keep up the great work, Tammy! You are priceless and I wanted you to know that your work does not go unnoticed and how very much appreciated you are by many! Carole Marks Posted August 4, 2006 9:52 AM