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Charlie Traffas
Charlie Traffas has been involved in marketing, media, publishing and insurance for more than 40 years. In addition to being a fully-licensed life, health, property and casualty agent, he is also President and Owner of Chart Marketing, Inc. (CMI). CMI operates and markets several different products and services that help B2B and B2C businesses throughout the country create customers...profitably. You may contact Charlie by phone at (316) 721-9200, by e-mail at ctraffas@chartmarketing.com, or you may visit at www.chartmarketing.com.
What's New
2006-03-01 08:45:00
An electric bill at $12,000 per month?
ANSWER:  It all depends upon your situation. It may the right decision, then again...it may be a very wrong decision.   The other day I was working work with a couple like you in their mid 50s. They too, were having a hard time understanding the need for a long-term care policy. In order to make the point of how long-term care costs could affect them, I said, "What if your electric bill was $12,000 per month?  What would you do?""That's ridiculous!" she said.  I replied, "I would hope so, but what if it was?  What would you do?"  "There's no way we could pay it," he said.  "So, would you move in with the kids, or would all of you move together in one giant commune and share the expense…or…what would you do?""That wouldn't even work.  No one could afford to pay such an expense, and continue to pay it every month," he said."That's exactly what long-term care for a loved one can do to a family," I said. "The average costs of long-term care (nursing home, assisted living, memory-impairment care) in the counties surrounding and including Sedgwick County (Butler, Harvey, Reno, Kingman, Sumner) ranges today from $30,000 per year to $60,000 per year.  This might seem like a lot but rates here are among the lowest in the country. The scary thing is when you add the impact of inflation on these rates over the next 30 years (when most people in their mid 50s today will require such care). For more than 30 years these rates increased at an average rate of 3 1/2 percent. Over the last few years they have increased at the rate of over 7 percent. What happens to $30,000 to $60,000 per year at just 3 1/2 percent for 30 years? The costs turn in to $80,000 to over $150,00 per year! $150,000 per year is more than $12,000 per month," I said.Sometimes a person has to imagine something more tangible before he or she will accept the possibility of a problem less tangible.  This couple is no different than many couples in their late 40s, 50s, and early 60s...the 'Baby Boomers.’ They have planned and worked or are working for a comfortable retirement.  They want it better than what Mom and Dad had, and...when they turn 65 (or before), they want to be retired with a comfortable income.  Once they get on Medicare, assuming they have paid off their mortgage, they should pretty well have things taken care of...except in the event of a long-term care confinement for one or both of them.   Such an expense for just one person in 30 years, using the average today's average time a person receives long-term care at home or at another site could cost well over $500,000...or well over $1,000,000 if both husband and wife need the care. Most could not plan to pay that kind of an unexpected expense out of income and savings.  So, what does one do? As with any risk, there are four ways one can manage it:1. Avoid the risk - Sometimes this works. For instance one can avoid the risk of getting hit by a car when crossing the street if he or she elects not to cross the street. According to statistics, this doesn’t appear to be the case with long-term care. The odds of needing this type of care sometime during one’s life are real. (Sources:  Nursing Home Utilization by Current Residence: 2005; Publication No. PB 90 163 015, National Center for Health Statistics, October 2005; Aging America, 2004 Ed.; U. S. Department of Health & Human Services; Health Insurance Association of America, 2005):• Of all persons past the age of 65, 7 out of 10 will need long-term care some time in their lives.• Of all persons past the age of 70, 8 out of 10 will need long-term care some time in their lives.• Of all persons past the age of 80, 9 out of 10 will need long-term care some time in their lives.The average length of stay for men in a Nursing Home is about 3 years, women average approximately 50 percent longer (Note: This time does not include time spent at home prior to confinement).As you can see, avoiding the risk is seldom in the control of the individual. 2. Retain the risk - This would mean do nothing and take your chances on not needing the care. Then, if some illness, injury or affliction causes you to need long-term care, you pay for it yourself, out of your own resources. If you determine you can afford to retain the risk there are a couple of questions you probably need to ask yourself before making your final decision.  1. Is it important that I leave anything to those I leave behind? and....2. Will it bother me to write a check each month for $3,000 to $6,000 or more (considerably more in the future)...and never know how long I will be writing these checks?While you may have accumulated a sufficient amount of income and assets to retain the risk, the thought of writing a check each month for these kinds of amounts for most would be unbearable.  For some reason, the memory of how one got what he or she has seems to be indelibly impressed upon one’s mind.If however you can answer ‘no’ to both of the above questions, retaining the risk may make the most sense for you.  3. Reduce the risk - This means you stay healthy, eat right, take your medication, and follow your doctor’s orders. It also means that you explore every avenue from Medicare and your Medicare supplement to obtain as many benefits as possible. Unfortunately, this method of managing the risk does not make it go away. It merely delays it. If you refer to the 2006 Guide to Social Security and Medicare, 34th edition, you will find that benefits are payable in a nursing home for Skilled care only...and for a maximum of 100 days if all of the conditions are met (between Medicare and your Medicare supplement) per confinement period. There are no benefits paid for Simple, Personal, Custodial, Intermediate or Supervised care.  Nor are there benefits paid for Assisted Living. It might be interesting to note that only 22 percent (on the average) of all people who enter a nursing home are receiving Skilled Care. In doing everything possible to reduce the risk, it is always advisable to designate a family member, who is knowledgeable of the benefits under Medicare and one’s Medicare supplement, to investigate all areas of benefit recovery. 4. Transfer the risk - When transferring the risk to an insurance company for a long-term care policy, you pay a small certain loss every month (the premium...for which you can plan for and budget), in return for them paying all or most of the large uncertain loss (the claim...which is the $30,000 to $60,000 or more per year), which would be most difficult or impossible to plan for and budget.   So, what is a typical monthly premium for a long-term care policy? It depends upon several factors, such as age at application, current health, daily benefits selected, benefit period selected, elimination period, and a host of different options. Here is an example from one company, for a couple, both 55, in good health (preferred rates), with $100 per day in benefits, payable for life, with a 5 percent inflation rider where daily benefits are compounded 5 percent each year, for as long as each spouse lives, with premiums for both waived if one is on claim, with a zero-day elimination period (benefits payable immediately when the policy is needed), would be around $360 per month. In this example, by the time the couple gets to age 85, which is the average age of needing this type of care, each policy would pay in excess of $12,000 per month for the cost of care, at home, in a nursing home, or in an assisted living residence...or double that if each spouse is confined.That is what is meant when it is said, the insured trades a small certain loss each month (the premium), which can be planned for and afforded, to the insurance company who will pay the large uncertain loss (the claim), which few could plan for or afford. If neither spouse needs this type of care until they are both 85, they would have paid total premiums of around $130,000. If then, between both spouses, they need 11 months of care, they would be ahead. If they need the policy before age 85, it takes even less months of care to break even. If you have income, assets and an estate to protect...if the peace of mind of knowing you have done everything possible to protect these things is important to you...and if you treasure your independence...transferring the risk should be considered. If on the other hand, you do not have that much to protect...and you can qualify for Medicaid under the income and asset guidelines...retaining the risk until your resources are exhausted...then applying for Medicaid...may make the most sense.
 
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