Imagine this scenario: you’re boarding a flight for a business trip or vacation. As you get on, the captain greets you and tells you that there’s only a 35% chance the plane will crash today. Great news, right? You couldn’t get off that plane fast enough. Yet, those are exactly the odds that you’ll need to use your long-term care policy from age 60. And what if you don’t have any insurance? Well the odds of needing some care rise to about 50/50, but paying for it won’t come from an insurance company; it will come from you or other family members.
According to the American Association for Long-Term Care Insurance (http://www.aaltci.org/), the real risk of needing care is either 0% or 100%. Percentages such as 35% or 50% are usually based on groups of 1000 or more of people of the same age. This is not relevant to your personal situation. You are one person, so you will either need care or you won’t. The more pressing question is, if you do need it, for how long will you need it, and at what price? This is your real risk.
Now, maybe you will be able to get your care while living at home. The great majority of care is home-based, with very few statistics as to percentages, etc. However, even home-based care is not inexpensive, with an average cost nationally of $20 per hour. Most conditions, however, are considered progressive, and at some point, home-based care can no longer be effective. Based on the 2014 study by Genworth Financial (http://www.genworth.com), the average cost of skilled nursing home care in Michigan is almost $95,000 per year for a private room. So, if you are 60 years old, you have either a 0% or 100% chance of having to come up with a very large sum of money, at least until you exhaust your savings and become eligible for Medicaid. Medicaid will take care of you, but not necessarily in the surroundings you’d like. There are no private rooms, and there’s not much choice in choosing a facility, since availability is first-come, first-served.
So why not insure this risk? We’ve shown that it’s a pretty big risk, one that comes with a hefty price tag. Insurance allows you to transfer the bulk of the risk to someone else, for pennies on the dollar. The younger you are, the less pennies you need. According to the AALTCi, the majority of nursing home stays are from 1-3 years. If the average cost is $95,000, you are at risk of paying from $95,000 to $285,000 if you have no insurance. Buying insurance would allow you to buy $285,000 at a deep discount, and who among us doesn’t like getting something on sale? If you’re in that 100% category, the bulk of costs are picked up by insurance.
But what if you end up in the 0% category? Then your insurance becomes similar to your homeowner’s insurance. You probably never needed it, but it was worth having for peace of mind. However, in today’s insurance world, this problem, too, has been addressed. You can own life insurance with a long-term care rider. If you need care, the rider kicks in. But if you’re in that 0% category, and never need it, you provide a tax-free death benefit to your beneficiaries.
A final note about odds. If you’re like most of us, you play the lottery, especially when it gets into 9 figures or more. The odds of winning the Powerball are 1:175, 223,510! Incredibly terrible odds, yet we play every week. If you hit, you sure won’t need insurance. But if you don’t….