What is Long Term Care?

Why do people need Insurance? The answer is risk management. People want peace of mind and insurance is a necessary evil that provides you that peace of mind. The main purpose of insurance is to pass on the risk to the insurance company. The risks people face are as numerous as the needs of insurance. Everyone would have insurance if it were free. It is the cost of insurance that is an aversion to people, not the benefits. However, people have to overcome the insurance cost aversion in order to avoid paying exorbitant costs later, out-of-pocket. Long term care insurance is important to have not just of the benefits it provides but not having it will financially overwhelm you.

Long Term Care

Long term care is an important component of long-term financial success. At a critical stage of life, long-term care insurance will be essential. Long term care is defined as care offered by a party for the benefit of one who is unable to care for oneself.

More expressly, the care benefits people who are not able to perform specific Activities of Daily Living (ADL’s) or who requires supervision because of severe cognitive impairment, such as Alzheimer’s Disease. On average, a long term care policy pays benefits when one cannot perform either of the two or three ADLs. The most common ADLs are:

  • eating
  • bathing
  • dressing
  • continence
  • transferring (getting in and out of bed)
  • toileting (moving on and off the toilet)

A misconception is that care is offered in a nursing home only; but care is also provided at an assisted care facility or at home.

When Do You Need It

The critical stage at which you will need long term care can come at any time; it can happen in an instant or progressively. A debilitating accident can occur or deterioration in a person’s health that will impel the need for long term care. Some reasons for receiving long term care includes:

  • disability
  • unremitting disease
  • protracted illness
  • injuries sustained due to an accident
  • cognitive impairment (ex: Alzheimer’s Disease) which reduces a person’s ability to think or reason

As people live longer, the probability of getting ill or being involved in an accident increases; unlike our predecessors it’s not unusual to see a person live till ninety or one hundred years of age. As baby boomers retire by the millions; nearly 78 million Americans in the coming years, they will place enormous strain on government resources. According to the Labor Department, by 2014, these boomers will represent more than one-fifth of the U.S. population, an increase from 15.6 percent in 2004.

More social and health care services will be strained by an army of retirees. According to the Social Security Administration, the Medicare trust fund system will crash by year 2019. Unlike their parents, the boomers want an active lifestyle during retirement, hence increasing vulnerability to injury, accident, or illness. Moreover, the changing traditional family structure migrating to single families and two working parent families makes it unlikely that a family member will have the caregiving skills to give their parents the care they will need.

I Don’t Need it, the Government Will Help Me

Do you really believe Social Security will be there in the future? No, I don’t, not in its current form anyway. So what makes you think the government will be there for you with regards to long-term care? Long term care services aren’t sufficiently covered by the majority of insurance or governmental programs including Medicare and Medicaid:

  • most of the major health insurance plans don’t cover long term care
  • Medicaid pays only for nursing home care only after you become financially destitute
  • Medicare covers some nursing home care for a limited time
  • disability insurance covers lost income not long-term care

Many people today have no idea what supportive and assisted living services cost. Nationally, the average annual cost in 2007 for a private room in a nursing home (single occupant) was $74,806.

The average costs of long term care in the United States (in 2007) were:

  • $180.78/day for a nursing home semi-private room
  • $204.95/day for a nursing home private room
  • $32.37/hour for a Home Health Aide
  • $17/hour for a Homemaker services
  • $2,714/month for Assisted Living Facility care (for a one-bedroom unit)

Source: Genworth Financial 2007 Cost of Care Survey

Bottom line

Majority of Americans aren’t thinking about long term care and its benefits. With escalating medical costs, long-term care costs will continue to rise. You need long-term care insurance to protect your personal finances. It is not a question of if you will need long-term care; it is when you will need long-term care.