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A long-term care policy is a financial protection

Updated: May 3, 2013 12:14PM

Originally published: July 8, 2002

The most devastating thing that could happen to your financial future is not a bear market. It’s the need for long-term care--for yourself, your spouse, or your parents.

The cost of living with a disabling illness or accident is astronomical--at least $60,000 a year for a nursing home or live-in health care assistance. And those costs are rising rapidly.

Many people mistakenly believe that Medicare or Medicaid supplemental policies will take care of them or their parents if the need for long-term care arises. But Medicare covers only a relatively few days of required care after a hospitalization. And no Medicare supplement covers long-term custodial care.

Yes, the state Medicaid program will step in if you’re impoverished. But given the cutbacks in state budgets these days, state-run nursing homes won’t be your residence of choice for yourself or your parents. And that problem will only get worse as baby boomers grow older.

The solution is to purchase long-term care insurance. Here’s a checklist to guide you through the process:

When should I buy?

Buy a policy in your early 50’s or as late as your mid-70’s. Buying earlier is best, because you lock in the fixed premium for future years. (Insurance companies can raise premiums only on an entire class of buyers in your state, not because your health situation changes.) The sooner you buy, the lower your annual premium.

What does it cost?

If you buy an individual policy, the annual premium depends on your age, health at time of purchase, and where you live (care costs are higher in big cities). If your company offers long-term care insurance in a group plan, you’ll still have to answer questions about your current health, but premiums probably will be lower.

How much coverage do I need?

Long-term care coverage is generally quoted in dollars per day. You probably should purchase at least $200-a-day in coverage.

What about inflation?

Good question. With health care costs rising faster than the Consumer Price Index, you’ll be wise to purchase an inflation rider, especially if you’re buying a policy in your 50’s or 60’s.

When does coverage start?

You’re covered from the minute you sign the policy. Payments begin when your doctor certifies that you are unable to independently do two of the five basic activities of daily living, such as bathing, dressing, feeding, toileting, transferring from bed to chair.

You said I could get care at home?

Yes. Almost all of today’s policies offer a home health care “pool of benefits” allowing you to use your specific daily dollar amount for care in your home. Make sure your policy’s coverage for at-home care is the same as it is for in-facility care. Some policies (including the federal government policy) water down the home health care to 75 percent of less of the daily benefit.

So give me a hint: What should I expect to pay?

If you’re in your mid-50’s and buy a $200-a-day lifetime policy with an inflation rider, and a 90-day deductible, and you’re currently in good health and in the Chicago area, you should expect to pay roughly $2,300 a year.

If you’re 74 and buy a $200-a-day, three-year policy without an inflation rider, and a 90-day deductible, and you’re currently in good health and in the Chicago area, you should expect to pay around $4,300 a year.

One last question: Where do I buy this policy?

This is important. Many companies are offering long-term care policies. You’ll want to buy only from the strongest companies, because you want them to be around when you need the coverage, and because you don’t want them increasing prices for all policyholders because they quoted prices too cheaply to attract buyers.

So compare prices, but only from strong companies like CNA Insurance, GE and John Hancock. And to make sure you’re getting comparable price comparisons, go to one of the following long-term care agencies to get quotes, since they can quote coverages from all of the above. For guidance, go to MAGA Ltd., (800) 533-6242 ( ); Long-Term Care Quote, (800) 587-3279 (, or LTCare (877) 582-2732 (

Living longer is better than the alternative. But living well is even better. And that’s The Savage Truth.

Terry Savage is a registered investment adviser and is on the board of directors of McDonald’s Corp. and Pennzoil-Quaker State Co. Send questions via e-mail to

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