Why You Need Long-Term Care Insurance
By Ric Edelman
Long-Term Care insurance is an excellent example of how The Rules of Money Have Changed. Many people have not dealt with this subject for the simple reason that, until now, nobody ever had the need.
In ancient Greece, for example, life expectancy at birth was 20. When the Declaration of Independence was signed, life expectancy was still just 23; the median age was 16. Even as recently as 1900, most Americans died by age 47.
These figures are confirmed by the percentage of Americans who reach age 65. In 1870, only 2.5% of all Americans made it. By 1990, that percentage had increased five-fold to 12.7%. Today, 35 million people are over 65 -- and the figures continue to grow.
We can thank advances in medicine and public health for our newly extended lifelines In 1900, communicable diseases were the leading causes of death, but today, most deaths result from heredity, lifestyle and the environment. That’s why people in the 1940s and 1950s rarely died of heart disease: They were far more likely to die from a contagious disease long before they reached what we would now consider “old age.”
Just how long are people living today? Consider:
- Life expectancy at birth is now age 78;
- people in the fastest growing age group in this country are those over 85;
- if you and your spouse both reach age 65, one of you can be expected to live to age 90;
- 90% of all the people in world history who ever reached age 90 are alive today; and
- Willard Scott won’t wish you a happy birthday unless you are least 100.
Old cars break down more often than new ones, and the same is true for people. As our bodies wear out, we find ourselves requiring assistance with daily life. Called the Activities of Daily Living, insurance companies typically define these as eating, dressing, bathing, toileting, transferring (getting from bed to chair), and maintaining continence. The need for assistance with ADLs is so common, and the cost so large, that:
- more than half the women and about one-third of the men who reach age 65 will spend some time in a nursing home;
- seven out of 10 couples can expect at least one partner to use a nursing home after age 65;
- the average cost of a nursing home is about $73,000 per year;
- half of all older Americans who live alone will spend themselves into poverty after only 13 weeks in a nursing home;
- 56% of couples spend their income down to the poverty level after one spouse has spent six months in a nursing home; and
- two out of five people 65 and over will need long-term care. Half will stay in a facility six months or less, while the other half will stay an average of two and a half years.
These statistics come as a shock to most of us. Indeed, as a nursing home admissions officer once told me, the most common remark she hears when admitting a new patient is, “I never thought I’d live this long.”
The Three Levels of Long-Term Care
We’ll talk more about the cost of care and how to pay for it. But first, it is important that you become familiar with the three types of care.
Level #1: Skilled Care
Defined as continuously medically necessary, these cases represent the horror stories about growing old: of people tied to their beds, connected to tubes, suffering from some chronic ailment. But in reality, only one-half of one percent of Americans require this level of care, so unless you have a medical or family history that predisposes you to it, it’s statistically unlikely that this will happen to you.
Level #2: Intermediate Care
This is care provided under a doctor’s supervision. Only 4.5% of the nursing home population falls in this category.
Level #3: Custodial Care
All other long-term care patients -- 95% -- receive custodial care, which is little more than room and board. It is based on the mere premise that you’re finding it difficult to maintain one or more of the Activities of Daily Living. Often, Mom is in a retirement facility because she cannot live alone at home anymore, and the kids are unable to care for her.
The result: Mom enters a retirement home. She will find her meals prepared, her room cleaned, and someone to remind her to take her medication.