Will You Still Need Me, Will You Still Feed Me?

11/15/2010 1:49 pm EST

Focus: MARKETS

Terry Savage

Author, The Savage Truth on Money

Stop what you’re doing and answer this question: Who will care for you in your old age? Will your children invite you into their homes and help you shower and take you to your doctors’ appointments?

Think about it—because one way or another most of us are going to be faced with this problem.  If you’re all alone, the situation might be even more difficult.

The one answer to all these questions is long-term care insurance. I’ve been recommending it for years. I thought it was a great deal then. And now I have proof.

Long-term care insurance policies have been such a great deal for consumers that one of the top underwriters—MetLife—has just announced it will no longer sell these policies. (They will keep their existing policies on the books and stand behind them when payout is needed.)

And another top LTC insurance underwriter, John Hancock—a division of Canada’s Manulife Financial (NYSE: MFC)—has just raised policy prices an average of 40%!

These policies were such a good deal that the companies were losing money on them. And if you followed my advice to lock in payments for ten years, so you’d have a fully paid-up policy, you now have a valuable asset.

But the real question is whether it’s too late to buy a long-term care insurance policy. The answer is no, with some caveats.

First, some background. 

Long-term care is costly. A recent MetLife survey shows the cost of care rising at 4.6% annually for private-room nursing homes.

  • The average private room nursing home now costs $83,585 per year. 
  • Assisted-living facilities now cost nearly $40,000 a year. 
  • Home health aides cost nearly $21 an hour.

So, let’s get back to the question of how you will pay for care for your parents, or yourself. It’s not a burden any generation wants to put on the next.

And don’t rely on the government, either. Long-term custodial care is not covered by Medicare or Medicare supplements, but may be covered by Medicaid—if you have spent down most of your assets.
  
But Medicaid provides care primarily in state-funded nursing homes, taking away your choice of care providers. And stressed state budgets mean those nursing homes are already woefully underfunded—and the situation isn’t likely to improve. The same baby-boom generation that crowded into mobile classrooms in the 1950s and 1960s will now be packed into whatever facilities can be found to provide care cheaply.

The health-care reform bill contained a woefully small long-term care benefit: $50-a-day coverage, with lots of restrictions.

So, here are three ways to buy at least some coverage with reasonable certainty about future premiums.

1. Buy a “10-pay” policy.  This will mean your coverage is fully paid up in ten years. If you start now, you’ll likely be paying in your highest earning years. That solves the problem of premium increases after you’re retired. 

And here’s a hint: Sadly, premiums on these policies are not deductible, until they become large enough to move your medical expenses above the 7.5% of adjusted gross income deductibility level. But a “C” corporation can deduct the premiums as a medical expense.

2.  Get your boss to offer a group policy for your workplace. The company doesn’t have to pay the premiums, though it could pay for some as a benefit.  Individuals and their family members can sign up for coverage. (If you’re younger, though, you might get a better deal on your own.) 

3. Buy at least a small amount of affordable coverage—especially if your state is one of the 31 states that have joined the Partnership for Long-Term Care (http://www.aaltci.org/long-term-care-insurance/learning-center/long-term-care-insurance-partnership-plans.php).

Then, if you need to use your policy, the state will exempt assets up to the amount of benefits you receive. When the real crunch comes, even having a small amount of coverage may be able to get you into a private nursing home, with a presumably better level of care.

And a final piece of advice: Don’t wait until you’re older to buy. Remember, even Superman needed long-term care in the prime of his life. And for the rest of us, the diseases of old age can be as debilitating as kryptonite.

Any questions? Please ask. Or join the conversation and have your say.

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