While ultimately budget considerations must come into play, the best way to assess your need, if any, for long-term insurance is to assess the risk. Here is what the data tells us:
Covering Long Term Care Costs
According to the widely-followed Genworth Cost of Care Study for 2015, the nationwide average (median) cost for a bed in a semi-private room in a skilled care facility is $220 per day. For a private room the median cost per day goes up to $250. That means that nationwide, the median annual cost of care is $80,300.
That's enough to consume a pension, and tear massive chunks out of most working American families' retirement plans, if paid out of private savings.
Some states have higher costs than others - and these generally track with overall costs of living in the community.
Individuals turning 65 this year have a nearly 70 percent probability of requiring some type of long-term care assistance or support in their remaining years. For younger individuals, this probability is actually even higher.
On average, women will require care for 3.7 years, and men will require it for 2.2 years. However, 20 percent of both men and women wind up requiring long term care supports and services for five years or longer, according to data from the U.S. Department of Health and Human Services.
65 percent of Americans will require home care, typically for a period of about to two years. Some of them will move on to more advanced - and expensive - levels of care. The average daily cost of an adult day care center is $79, according to the Genworth survey.
35 percent of Americans require nursing facility support - also for an average of one year - though some people will require care much longer than this.
Another way of looking at the problem is to consider the amount of assets at risk. The very poorest among us can qualify for Medicaid. The very richest can write a check without flinching. For those of us in between the two extremes, who have home equity, retirement assets, a small business, or children to whom we want to pass on a financial legacy, insurance coverage can be a critical consideration.
Covering Possible Medicaid Clawbacks
Each state has its own rules, but occasionally people qualify for Medicaid even though they have assets in home equity, or have a spouse living in the home. The state typically will not seize the home while the patient or community spouse is living in it. But they will place a lien on the home, so that they can reimburse the taxpayer for any Medicaid benefits paid on your behalf while you were alive.
Essentially this means that your family ultimately pays the cost of care. The money paid out in benefits is deducted from what they will inherit.
But qualified long-term care insurance policies come with an important benefit over and above the daily benefit rate: If you buy long-term care insurance protection worth, say, $500,000 (that is, a benefit of up to $100,000 per year for up to five years), the state will generally exempt that amount from their clawback program.
So if you buy that much coverage, but it turns out you need more care, and Medicaid kicks in, the state will typically pay up to $500,000 in benefits before Medicaid seizure rules come into play.
So one approach planners frequently recommend is to purchase coverage equivalent to the value of their estates, up to the desired benefit level. This way, not only do you protect your retirement income from being devoured by long term care costs, but you also protect the inheritance that you hope to pass on to your children.
To get coverage in place, or to find out more about available protections, contact your HALO Insurance advisor today, 314-351-HALO (4256).