Long Term Health Care Insurance: How Can You Pay for It?

First let's agree on short vs long term health care. Your regular health insurance (Kaiser, Blue Cross, etc) is Short Term Health Insurance. It is designed to help you get better in a short period of time. But what if you get better, you do not require medical attention, but you need help with normal daily activities? This is what long term care is about, and long term care insurance covers what short term health insurance does not cover.

Everyone wants to know how much long-term care insurance costs and when they get the price they often delay purchasing it. What delaying might mean to you.
A fair number of baby-boomers are facing the long term care reality with their parents. Often what happened with the boomer's parents will influence the boomer to do one of two things, get long term care insurance or continue to self-insure.

Some people decide to look into long term care insurance then they get sticker shock, which I will address later. If they do not get insurance they are in effect deciding to self-insure or pay themselves.

Keep in mind that the younger you are the cheaper it is and if you have a change of health before you buy insurance you may not qualify which means you'll be on the road of paying yourself (or applying for welfare/Medicaid).

Do you have any idea of the risk of needing long term care? Everyone wants to have short-term health insurance in case they have a catastrophic health event happen. And many pay a lot of money for a low-deductible health plan. One option is to see if your HMO, PPO offers a high deductible plan or consider a HSA, Health Savings Account. Again the purpose is to insure against a catastrophic health event, not a doctors visit for a cold.

The same concept is true for long term health care and long term health care insurance. It's all based on risk. According to a 2006 GAO (Government Accounting Office) report, 60% of Americans will need long term care. This number will increase as the baby-boomers age. But let's say for this example your chances are only 50/50.

According to the National Insurance Institute your house has about a 1:1,300 chance of burning down, and to protect yourself you have homeowners insurance (average rate of $500-$2,000/yr). What do you think your homeowners insurance would cost if your home had a 50/50 chance of burning down? Now you see why long term care insurance is priced the way it is.

Ok, you've been convinced to buy long term care insurance, but how much do you buy and from whom, and how can you pay for it?

You need to buy enough to cover the cost of care in your area for as long as you think you might need care. Checking with local health care agencies, assisted living facilities, nursing homes and Alzheimer's facilities you get an idea of what it cost in your area. To get an idea of how long you'll need care you can consider your health, your parents and grandparents health. If they lived long you may want benefits for a longer period, if they had cancer, heart disease, etc, which cut their life short, you may only want to get a couple of years of coverage.

So the 3 factors determining the long term care insurance premium are your age, your daily or monthly benefit (how much it costs in your area), and how long you want or may need to receive benefits.

If you want to save some money and can afford it you can get a benefit for less than the cost in your area and if you need care you make up the difference out of your pocket.

If you have health issues you might find a company that will insure you with a sub-standard or higher rate. Beware of companies that will insure anybody, they not only raise their prices often they may not be around when you need them.

Now you've thought about how much you may need and for how long but who do you buy from? The big companies have the strictest health requirements, similar to preferred drivers in car insurance. The better driver gets the better rate from the better company. You can get an online quotes at various websites like guidetolongtermcare.com and ltcinsurancequote.com

You've gotten your quote and are ready to apply for insurance but you're not sure the best way to pay for it. Here are some options you have.

If you have at least $100,000 in your savings/investments/etc (not 401s etc). That $100,000 is what is at risk when you need long term care. Let's say you get 5% interest on that money or $5,000 a year. Doesn't it make sense to take that interest, which you usually just roll over, and pay for long term care insurance to protect the entire $100,000?

Other options you can consider are SPIA's (Single Premium Immediate Annuity) which puts a cap on how much you will pay for long term care insurance over your lifetime. You can also consider a whole-life insurance policy with a long term care rider (which is usually about 4-6 times more). If you die your beneficiaries get the death benefit, if you need care you draw from the death benefit and then the rider. For these options I found information on the website guidetolongtermcare.com in the Solutions section.

A couple of points I want to make before I end this article.

First, you are already insured for long term care. You either have long term care insurance or are self-insured (unless you plan on going on Medicaid - welfare health care).

Second, you do not know when you will need it. Later today, tomorrow, next week, next month, next year, in 5, 10, 20 years. You just don't know. Chris Reeves (Superman) on that fateful morning when he got up and decided to go horseback riding he never thought that he would have a devastating accident and live in long term care for 9 years. But then, it won't happen to you, or will it?