LTC Insurance: The Umbrella Every Boomer Needs

By Amy Bell | November 27, 2009 AAA
LTC Insurance: The Umbrella Every Boomer Needs

Americans are living increasingly longer lives. While it's fabulous to know that we're living longer, statistics also show that two in every five people who reach the age of 65 will eventually require some form of long-term care - and this kind of care doesn't come cheap.

As a matter of fact, a year's stay in a nursing home can cost between $40,000 and $80,000 or more, depending on where you live and type of nursing home you choose. Unfortunately, Medicare does not cover long-term care expenses.

So, how can seniors handle the skyrocketing costs of a potential long-term care event? The answer is simple: long-term care insurance (LTCI). Without an LTC umbrella, a nursing home stay or another long-term care event could devastate your family's finances. This is why it's critical for each and every baby boomer to plan ahead for a potentially expensive long-term care event.

A Booming Problem
As America's 77 million baby boomers continue to age, the number of people in need of long-term care will likely skyrocket in the next 30 years. Estimates show that by 2040, there will be 14 million elderly Americans age 85 years or older - the age group that is most likely to require long-term care.

As a result, senior care will likely outpace the need of child care. (Find out why 98% of employees are missing out on some great benefits in Take Advantage Of Employer-Sponsored LTC Insurance.)

The Shocking Costs
If you or a loved one suffers from an illness that requires long-term care, get ready to cough up some serious cash. While prices vary based on where you live and the type of care you require, one thing is consistent across the board when it comes to long term care: it's phenomenally expensive.

Just take a look at the average costs of long-term care in the U.S.:

  • $5,566 a month for a semi-private nursing home room
  • $6,266 a month for a private nursing home room
  • $2,968 a month for care in an assisted living unit
  • $19 per hour for a home health aide

While this may not seem like a huge expense, these costs can quickly add up and eat away at your nest egg. For example, let's say you hire a home aide to assist your husband just three times a week for four hours. Because a home health aide charges $19 an hour on average, that would come out to $228 a week. That adds up to nearly $12,000 a year. Cha-ching!

No One Can Afford To Self-Insure
If you have a plump, healthy nest egg, $12,000 may seem like a drop in the bucket. And you're not alone - many Boomers with a high net worth assume that they'd be able to pay for the costs of long-term care out of their own fat wallets. (The latest offerings are markedly different, with more coverage and bundling options. Check out The Evolution of LTC-Insurance Plans.)

However, you're probably underestimating just how much damage a long-term care event can do to your finances. Consider this: the national average daily rate for a private room in a Medicare-certified nursing home is $210. Therefore, a one-year stay would cost $76,650. That adds up to a whopping $383,250 for a five-year stay.

Still not ruffled? Let's say you and your wife are in your mid-50s, and you have $2 million in liquid assets, not including your home. With that much cash, you probably assume that you'd have more than enough funds to cover a five-year stay in a private nursing home room.

However, you've forgotten to factor in a few additional costs of self-insuring for long-term care:

  • Inflation: The ever-increasing rate of inflation could quickly magnify the cost of long-term care. What costs $200 today could cost as much as $1,000 30 years from now.
  • Taxes: If you're forced to sell an asset that has appreciated in value or take an IRA distribution to cover the cost of long-term care, you'll probably face some hefty tax consequences.
  • Lost investment opportunities: If you end up paying out of pocket for long-term care for five years, you'll lose out on other investment opportunities.

When you factor in these additional costs, it turns out that the real cost of long-term care for you and your loved one would be much more expensive than you realize. This is why financial experts stress that long-term care planning is crucial for everyone - even affluent seniors. (Learn what you can do now to keep your options open in the future in Long-Term Care: More Than Just a Nursing Home.)

Every Boomer Needs LTCI
As you can see, even high net worth Boomers should consider purchasing long-term care insurance. Without LTCI, the cost of a nursing home stay or a home health care aide could wreak havoc on your finances and whittle away at that nest egg you've worked so hard to build. Because LTCI covers many of these exorbitant expenses, this valuable insurance will not only protect your finances, it will also help you to maintain your current standard of living if you or spouse requires long-term care.

If you want to discuss your long-term care insurance options, meet with a financial advisor or insurance agent. A professional can evaluate your unique situation and help you customize an effective plan.

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