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Over 70 and Long Term Care Insurance
Jan L. Warner & Jan Collins

Question: My husband and I read your recent articles dealing with long-term care insurance, and we wanted to ask your advice about my 78-year old father. My mother died several years ago after a short illness, and he has come to my husband and I (I am his only child) for advice. Dad has fairly substantial assets including a home that is paid for. He has income from Social Security and a company pension, and he takes mandatory distributions from his 401k each year.

His financial planner discouraged him from buying long-term care insurance, telling him that the cost would outweigh the benefit and that he should invest his money in annuities. He is in relatively good health. What is your advice concerning long-term care insurance at his age?

Question: My mother, age 73, is a widow and receives just over $1,000 monthly from Social Security. Her house is paid for and she has savings and other assets in the low six figure range. She wants to make sure that if she can no longer take care of herself, she can receive care at home, but she is concerned about the cost of long-term care insurance. She is in good health. My sister and I want to help her make some decisions about these issues and need some guidance.

Answer: Because of the significant number of requests for more information since our recent column about long-term care, we turn now to the decision-making process for folks who are over age 70 and concerned about the cost of coverage.

Since we do not know all of the facts, we certainly don’t intend to second-guess a financial planner who does. However, in our view, the only way to know whether or not you can afford a product is to ask an insurance professional to work up several quotations for coverage with leading companies and then make a decision. Generally speaking, we do not believe that annuities are appropriate vehicles to fund long-term care expenses.

That said, since the cost of long-term care in a facility can exceed $5,000 per month and at home can be $4,000 or more, if the cost of the policy is $3,000, $4,000, or even $5,000 annually, if you can afford it and pass the underwriting, long-term care coverage is a bargain.

As part of the decision-making process, deduct your parent’s monthly income from the monthly cost of care. Any shortfall will have to be funded by delving into assets. And if your parent begins paying for home care, assisted living, or nursing home care at the going rates, you can “guesstimate” how long the assets will last if you assume a reasonable rate of return on the assets and a reasonable escalation of long-term care costs over your the parent’s life expectancy.

Taking the NextStep: Whether or not to purchase long-term care insurance is, in effect, a business decision. If an individual can afford to pay the premium and wants to leave an estate for his or her family, then long-term care insurance makes sense. If an individual wishes to put his or her assets at risk, then that is his or her privilege. Premiums can be reduced by increasing waiting periods, taking lesser daily rates, limiting the extent of coverage, and removing some of the “bells and whistles” from the coverage.

If you are considering a purchase, deal only with those companies which have been in the business for a long time. Consider only those policies which cover all three levels of care (custodial, intermediate, and skilled) because less than one-half of one percent of nursing home residents receive skilled care, and more than 90 percent require custodial care. Make sure that home health does not require a prior hospitalization or period of nursing home confinement.



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