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LTC Insurance: a Lesser and Necessary Evil

May 25th, 2014 at 10:11 pm

I have maintained a long term care (LTC) insurance policy since I was in my mid-50s. I do not like paying out the $176 premium every month, but I have done so now for about 10 years. About a year ago, the insurance company got approval from state regulators to change my benefits duration from lifetime to a maximum of 10 years. I most certainly did not like that. But I have kept the policy and continued paying the premiums. Am I a glutton for punishment? No. Not at all. I am convinced that having an LTC insurance policy is the lesser -- and necessary -- evil. Here is why I think that.

Once you need LTC, having it is not optional. You go into long term care when you cannot take care of yourself. You cannot dress yourself. Or you cannot feed yourself. Or you cannot literally wipe your own butt. If and when the time for LTC comes, you cannot say no. You are going to get long term care or die in the street. So the only questions will be (1) who will provide you with long term care, (2) what kind of care will you get, and (3) how will it be paid for.

Long term care could bankrupt me. Or, at least, totally wreck my carefully crafted financial plan.* At a minimum $150 a day for a decent facility, LTC will suck up $4500 every month. That is $54,000 every year. And that is at today's prices. If I had to pay that out of my own pocket, my income would no longer stay ahead of my expenses. And my asset base would shrink -- and shrink -- year after year. To avoid that, an LTC insurance policy is the lesser -- and necessary -- evil.

I am not rich NOW, so self-insurance is no solution. LTC insurance is not just for if/when one might need care at 85 years old. Something could happen to me today to make me need LTC right now. I could have a crippling accident today. I could have a stroke today. And I would need LTC right now. So there is no time to build up a self-insurance stash by investing the insurance premium money instead of handing it over to the insurance company. To self-fund long term care at a minimum cost of $50,000 a year I -- and anyone else -- would need an extra half-million to 1.25 million dollars. Since I do not have that extra fortune today, I am covered by an LTC insurance policy as the lesser -- and necessary -- evil.

Long term care by family is a wrong solution. I cannot justify pressing a family member into who-knows-how-many years of forced LTC service just so I can spend the monthly premium money on something else. If I care for a person, I do not see how I can rationalize turning that person into my 24/7 servant -- never again being master of his or her life -- until I am dead and gone. To me, that seems the perfect way to turn that person's love for me into something else entirely. To avoid all that, an LTC insurance policy is the lesser -- and necessary -- evil.

Government-provided LTC is a poor and impoverishing "solution." Health insurance does not cover long term care. Neither does Medicare. The one way to receive government-provided LTC is through a Medicaid program. But Medicaid is specifically for people with no means. So, to qualify for Medicaid LTC, one has to become a person with no means. That boils down to not being able to qualify for Medicaid LTC until after virtually all of one's assets have been consumed by LTC costs. Nothing left for a legacy. Damn little left for your spouse. It is a financially hellish way to go. And the tradeoff is not good.

Government-provided LTC is minimal LTC. Budget limitations force it to be. With my LTC insurance, I can at least approach my choice of an LTC facility as a paying client with some expectations. As a Medicaid recipient, I would have to accept wherever I was placed and whatever care I was given. I do not want my living conditions -- and possibly even my life -- to depend on the good graces of a bureaucratic, non-performance-based government program. I will take the lesser -- and necessary -- evil of LTC insurance instead.

LTC insurance is a necessary expense. That is why it is a part of my $18,000 annual baseline living budget.** To me, LTC insurance is a need, not an optional want. And at less than $180 a month, it costs me much less than other people's frivolous new car payments.*** Even less than some people's cable television monthly bill. And the peace of mind I get from having LTC insurance is worth much more to me.

The takeaway: Long term care insurance is not just for when you become old and decrepit. A stroke, an accident, or some other health misfortune could make you need long term care now. So you have to protect yourself now. Otherwise you face the loss of all your financial assets. Or face the prospect of forcing your most loved family members into an unchosen life of servitude and limitations. Or both.

# # #

* My Six Lines of Financial Defense:
http://retired-to-win.savingadvice.com/2014/04/29/my-six-lin...

** My $18K Annual Baseline Budget:
http://retired-to-win.savingadvice.com/2013/12/29/my-18k-ann...

*** My Oldie-Goldie Thrifty-Nifty Truck:
http://retired-to-win.savingadvice.com/2014/03/25/my-oldie-g...

1 Responses to “LTC Insurance: a Lesser and Necessary Evil”

  1. Another Reader Says:

    Self insurance is the way to go these days in my view. The policies available today are much more limited than what you have for higher premiums. There is a real question about whether the insurance companies mispriced this product when it was introduced and if they will all be able to meet their obligations. I would expect further reductions in benefits as you approach the age where you might actually have to use it.

    The reality is most people die in nursing homes within a year or two after entering. Even if you spend $100-$150k for that time, will that bankrupt the surviving spouse? If you have adequately planned, probably not.

    I was able to keep the surviving parent in his home for several years with part-time and then full-time help. For the last 6 months, care was 24/7. Fortunately the money was there, but the 24/7 care was still less than nursing home care, and much less before the 24/7 care was needed. He was well cared for, very happy, and probably lived longer than if he had gone to a nursing home. Win-win in my book.

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