The Long Haul: Part Two

By Tammy Flanagan

August 4, 2006

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:

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:

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.


By Tammy Flanagan

August 4, 2006

http://www.govexec.com/pay-benefits/retirement-planning/2006/08/the-long-haul-part-two/22408/