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Kelly Ruggles is the author of "The Financial Playbook" for Retirement.
Kelly C. Ruggles, Financial Planner and Educator

Chapter 5- Long-Term Care

Most people don’t plan for long-term care, but unfortunately, long-term illness occurs all too often. According to AARP and others we have a 65%(+) chance of needing long term care at some time when we reach age 65 years and older. Long-term illness is the number one reason for retired persons in the United States to lose all they have worked a lifetime to acquire. Don’t put off educating yourself on the subject merely because you don’t want to think about it.

With prudent planning you can either avoid the nursing home entirely or provide the means with which to pay for the assistance you and/or your spouse require if you no longer can live independently. The goal is to have the means to provide for the type and kind of care you want; i.e., home care, assisted living and the like.

Long-term care insurance is just like every other kind of insurance you must have it in place before a need arises. You can’t get collision insurance for your car after you’ve had an accident and you can’t get a long-term care policy after you’ve become disabled. You must answer questions relating to your health to be approved for long-term care insurance. If you are in poor health you may not qualify for coverage.

       You’re not just protecting yourself when you plan for long-term care: you may also be protecting your children from footing your cost of nursing home care or taking the responsibility providing care of you. If you have long-term care insurance, you decide where you will receive care.

“I’m just going to rely on Medicaid.”

Medicaid should be the policy of last resort - not the option of a prudent person who plans ahead. To qualify for Medicaid is a punitive process. The rules are complicated and in effect you must become almost bankrupt if you are married and truly bankrupt if you are single.

Medicaid pays less per day than a private-pay policy: consequently some facilities are reluctant to take residents who rely on Medicaid. There is a valid reason for this reluctance because Medicaid pays less than the prevailing costs. For example, Medicaid may pay a facility only $3,000 per month where a private-pay policy may pay $5,000 or more. Consequentially care facilities generally set aside only a certain number of beds for Medicaid and Medicare patients, thus limiting your access. Since it is often extremely difficult to find a placement, you may end up many miles from your family and friends.

In Home care:

Medicaid does not provide for long-term care in your own home.

Medicare coverage

 Do not count on Medicare to cover your costs if you need long-term care. Medicare will pay for the first 100 days at best!

Criteria for Medicare to pay long term care costs:

·     Your admittance to a nursing home must follow at least a three-day stay in a hospital

·     You must be admitted to a nursing home within 30 days of the hospital discharge

·     The nursing home must be Medicare certified; and

·     A doctor must certify the need for the skilled care on a daily basis.

Keep in mind Medicare pays only around 10% of all claims submitted for the 90-day elimination period. It’s best to have insurance or be prepared to cover this cost yourself for this period if at all possible.

What is long-term care?

When a person requires someone else to help with physical or emotional needs over an extended period of time, this is long-term care. This help may be required for many of the activities or needs that healthy people take for granted and may include such things as:

  • Walking
  • Bathing
  • Using the bathroom
  • Feeding, etc.

The need for long-term care help might be due to a terminal condition, disability, illness, injury or the infirmity of old age. The need for long-term care may only last for a few weeks or months or it may go on for years. It all depends on the underlying reasons for needing care.

What you can do to stay out of the nursing home

       Even though you should plan for long-term nursing home care, you can take steps to reduce the risk for your need for it. Being fit and healthy is a great start.

Physically Fit.

If you haven’t already been pro-active in taking care of yourself, it’s never too late to get moving. You should combine aerobic exercise – such as walking, swimming or jogging at least three times a week for 20 minutes along with strength training.

If you are uncertain where to start, talk with your doctor and visit a gym. You may be able to get some good tips from a personal trainer.


       If you have specific health problems, or are uncertain of what you should and should not eat, consult a nutritionist. Maintaining a healthy weight and not smoking are two of the best ways to help you live longer and healthier.

Long-term insurance

         Statistics show that only about 10% of Americans own a policy to cover long-term care cost in the event of a need. As mentioned previously around 65% of people over 65 will need courage during their lifetime. There is obviously a remarkable difference between the potential need and those who are covered.

Long-term care insurance can be a tremendous safety net for those approaching or in their retirement years. Unfortunately, devising an insurance plan to meet your potential need is a complicated process. Working with a professional planner with experience and knowledge in this area is your best option to determine and help you fill this need for the following reasons:

A competent planner will have experience and skill in the following areas.

  • Helping you determine you goals
  • Medicaid rules
  • Costs in your area
  • Determine if you can, or want to self insure all or part of the cost in the event of a need

How long term care insurance works.

       Following is a short summary of the features and benefits of long term care insurance.

Amount of daily benefit:

The daily benefit is the agreed amount the insurance company will pay on a daily basis. For example, the maximum benefit may be $100 per day, $150 per day and so on. A policy that pays $200 per day as of this writing will cover most of the costs in most facilities. This is $6,000 per mont 

Home care 

Naturally, most people prefer to receive care inside their homes; however, it’s not always possible and it’s often more costly to receive care at home. If you require in home care 24 hours a day, the cost can be $15 per hour or more, depending on your area. This means a daily cost of least $360 per day or more. This may be too much for you to cover from your own resources. Good planning can provide you with this option.

You should still insure for home care for the following reason. In the above example you needed 24 hour care. In this case a facility is your best bet unless you can absorb the costs. Most people start out not needing 24-hour care. They may just need someone to go shopping for them, or give respite to a spouse or other family caregiver. In this case, if your policy will pay either way you can stay at home as long as possible.

       Benefit Period:

The benefit period is the length of time your policy will pay for your costs. For example it could pay for three years, five years or a lifetime. Most policies written in the last few years use a pool of money concept. That is, there are a certain number of dollars that are available for you to use as you see fit as long as they comply with coverage criteria. This includes care in your home. Some insurance sales materials use only the average length of a nursing home stay as the basis for the benefit period they may recommend. While this should be taken into consideration, it’s more likely you will have a combination of home care, assisted living care and nursing home care. This could easily add up to five or six years, if not longer. Often the best policy provides converge for 5 years or longer.

Solutions to the cost of long-term care

       “But it costs too much.” People often either delay or never purchase long-term care coverage because of the cost; however, you do have several options to reduce or avoid the expense. You also might not need the most expensive policy but at least consider the most basic policy because that is better than none at all. It’s never a mistake to protect yourself and your family financially against health catastrophes such as heart attack, stroke, etc.

Use your annuity

       If you have an annuity, consider using this to avoid paying the expenses out of your current cash flow. If you are not using the money in the annuity anyway, it will not cause any change in your budget.

       A qualified insurance agent can tell you how much you can deposit into an immediate annuity to fund your long-term care policy. If you need to use your policy, most long-term care insurance companies stop premium requirements. The annuity income can then be used for a different purpose.

Reduce the coverage period

You could reduce the term of the policy to 2 or 3 years. Almost three-fourths of people needing long-term care are adequately covered by a 3-year policy because of death.

Increase the elimination period

Selecting a 90-day elimination period as opposed to selecting a policy that pays from day one will reduce your premium cost.

Reduce the daily benefit

Nursing care costs averages about $180 per day in 2006, depending on your area. Some areas cost much more of course. A great way to reduce your premium costs is to purchase a policy that pays less than what is needed, in effect self insuring the shortfall. This is where the help of a skilled advisor is invaluable as he or she can help you calculate your economic risk and suggest the best policy for your situation.

Omit the inflation protection

Only consider this if you are age 75 or over. If you do need long-term care, you are likely to need it by age 85, and will not need to protect for inflation for as long as someone 65 or younger.

Partial Home care coverage

       Most companies will offer a daily benefit for nursing home and a reduced benefit for home care and will lower your premium.

Eliminate home care insurance

If you have a spouse, other relatives or friends who can help you in your home, and you have adequate means to hire a part-time home aide, you may be able to eliminate this portion of your coverage entirely.

Linked benefit policy

       With this policy you only pay a single premium, and you earn interest on it as well. If you never use the insurance, you or your beneficiaries get the premium back, plus interest. Of course, if you do use the insurance you have the coverage.

Comparing Long-Term Care Policies

It’s not as complicated as it seems. Your agent or planner first starts by helping you answer the following 5 questions to determine the best policy for your situation.

1.       Length of coverage

2.       Daily benefit

3.       In-home care

4.       Inflation protection

5.       Deductible days/elimination period

Once these issues are resolved, comparing the coverage offered by different insurance policies is simplified. These issues will help you determine your needs and decide among the policies and prices.

       Return of premiums

       Some insurance companies will return your premiums to your beneficiary at your death if not used.

Insurance Company Ratings

Before you choose a company to work with make sure you know their rating. Your planner can provide you with this information provided by one of the rating services such as Standard & Poor or A. M. Best.   The higher the rating, usually the better the company.

Limitation of benefits 

A planner will also know the features that limit or reduce your benefits. For example some policies require you to pay the first 90 days each time you need long-term care. Often people have several separate bouts of needing short-term care. Some policies limit benefits paid by the week or by the day and this could be significant, depending on your needs and costs.

An experienced financial planner will help you shop insurance companies and assist you in choosing the best coverage for your needs and means.


Helping you come to an understanding of your long term care options is one the most difficult processes in a financial planning practice. Although we know the statistics of the chances of your needing care, it is impossible to know if you indeed will. In other words, you may go through life without such need but if you do, the costs can and most likely will be devastaing to you finances.

       The key is education and the planning of many variables. Do you want coverage, can you afford it, can you get it, should you or do you want to self insure all or part of the need and so on. It’s importaint to work with a planner who understands the process and your options. A good planner can decrease your costs and risk dramatically, as well as provide you with the informaiton to make the best decision for your situation and temperment.

Next Chapter: Estate Planning

Financial Concerns for Retirement by Kelly C. Ruggles

©2007, Kelly C. Ruggles | Sitemap | Disclosure | Kelly Ruggles Bio
Kelly C. Ruggles, President of American Reliance Group, Inc., is a registered investment advisor. Mr. Ruggles is the author of "The Financial Playbook" for Retirement.

Mr Ruggles does not intend to provide personalized investment advice through this publication and does not represent that the strategies or services discussed are suitable for any investor. Investors should consult with their financial advisors prior to making any investment decisions.