Long-Term Care Insurance

Kevin McCormally: I am Kevin McCormally of Kiplingers, and I am here with Mary Beth Franklin, Senior Editor of Kiplingers Personal Finance magazine. Today we are going to talk about nursing home bills, and more importantly long term care insurance. Mary Beth, nursing home bills are astronomical these days, what can people do about them?

Mary Beth Franklin: That's right, the average nursing home bill for this year is over $75,000 a year. You can see how a few years in a nursing home would wipe out anybody's retirement savings.

Kevin McCormally: Okay, so what can people do about it? Does long term care insurance really help?

Mary Beth Franklin: It does, because Medicare for the most part does not cover nursing home bills, or any other kind of long term care at home or an assisted living facility, and neither does medicate the program for the poor, unless you spend down to poverty level. So all you have left is either paying out of your pocket, or insuring yourself with long term care insurance.

Kevin McCormally: Okay, how does long term care insurance work, and how do you find a good policy?

Mary Beth Franklin: Well, several factors effect the price of long term care insurance. The first is your age when you buy it. The younger you are, the cheaper it's going to be. But then again, you are probably going to be paying that bill a lot longer.

Kevin McCormally: So in that ways, it's like cash value life insurance. The younger you are, the lower the premium, but the longer hopefully you pay it before you die, here you are hopefully, you are paying before you need long term care.

Mary Beth Franklin: That's right. Secondly, is how long your coverage. We have found for the most part, a three year policy will cover most people in a nursing home, and that's a lot less expensive, than say buying a 10 year long lifetime policy.

Kevin McCormally: That 's because most people are not in nursing homes for more than three years. So a three year coverage period is enough to pay the bills, that they need to be paid.

Mary Beth Franklin: For most people, that's right.

Kevin McCormally:What about the daily benefit amount?

Mary Beth Franklin: It depends on where you live. If you are in place like Connecticut where nursing homes are very expensive, you probably want to buy a $200 or 250 a day benefit to cover that. If you live in Mississippi, you might get away with a $100 a day.

Kevin McCormally: Okay, the big question, what about inflation coverage, how important is that in a long term care policy?

Mary Beth Franklin: Inflation is crucial, particularly for somebody who is 70 years old or younger, because you may not need this benefit for maybe 20 years, and imagine what a nursing home will cost that.

Kevin McCormally: What if you look at a policy, and decide you can't afford what you want, where do you compromise, what you cut out?

Mary Beth Franklin: We recommend that you go for a short fat policy, rather than a long skinny one. That means rather than buying a lifetime benefit with maybe $100 day coverage, you will be better off buying a three year policy with adequate daily benefit, and definitely inflation protection.

Kevin McCormally: Thank you very much Mary Beth.