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2003-01-01 12:18:00

$13,000/mo. for electricity? You’ve got to be kidding!

ANSWER:  It may not be a bad decision at all, but then again… depending upon your situation… it may be a catastrophic decision.  The other day I was working work with a couple in their 50's.  They too were having a hard time understanding the need for a long-term care policy.  After several attempts to explain the costs, I finally said, "What if your electric bill was $13,000 per month?  What would you do?""That's preposterous," 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 an including Sedgwick County (Butler, Harvey, Reno, Kingman, Sumner) ranges today from $25,000 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 50's today will require such care).  For more than 30 years these rates increased at an average rate of 3 1/2%.  Over the last few years they have increased at the rate of over 7%.  What happens to $25,000 to $60,000 per year at just 3 1/2% for 30 years?  The rates turn in to $65,000 to $160,00 per year!    $160,000 per year is over $13,000 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 40's, 50's, and early 60's... 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.  How can anyone plan to pay that kind of an unexpected expense out of income and savings?  Yet, that's the only way you do pay if you do not have a policy, and want to keep what you have... but at those rates... you won’t keep it very long.  How expensive is this kind of insurance?  Let's look at an example for a couple in good health (preferred rates).  A typical long-term care policy for a man and wife in their mid-50's, that would pay guaranteed benefits in excess of $13,000 a month in 30 years, no matter where he/she/they wanted to receive the care, would cost about $3,000 per year in premium ($250 per month).  Again, this assumes both are in good health at the time of application.  If they paid on this policy for 30 years... when they are most apt to need the care, their total premiums paid would amount to $90,000 (remember, 90 days after receiving benefits, premiums are no longer payable for the confined spouse, so if the policy is used before 30 years, it works out even better).   If... over the next 30 years... either the husband or wife (or both) needs just 7 months of care... they would be ahead.  Statistics1 show they will most probably need the care... and it is almost certain that at least one of them will.Long-Term Care insurance protects income, assets, independence and peace of mind.  If these things are important… they need to be protected.  The alternative is to spend down one's assets on the cost of care to the threshold level, then do a division of assets between the confined and non-confined spouse, then spend down the confined spouse's assets on the cost of care, then have the confined spouse go on Medicaid.  This is a rather involved process and one that will be explained in its entirety in a future issue.1. National Center for Health Statistics, #PB90 163 015, '99)… "6 out of 10 people past the age of 65, 7 out of 10 past the age of 70, and 8 out of 10 past the age of 80 will need long term care."By Charlie Traffas