Riding the Line of Overcautiousness

Over the last few months, I’ve made the conscious decision to investigate long term disability insurance and long term care insurance for myself to help my family survive if I were to become incapacitated for some reason. I’ve been quietly collecting quotes on these insurance types and reading up on them so that I really understand what I’m buying and what the loopholes are.

I had a conversation with a friend that I trust quite a bit about this process, and he seemed completely shocked that I was doing this. “You’re listening to too many insurance salesmen,” he told me. “Why would you even consider such a thing?”

He went on to talk about the various scenarios that might occur that would require such long term insurance, and for each case he had a reasonable explanation as to how the bills would get paid. He argued that there might possibly be a case for long term care insurance but he believed it was the equivalent for buying house insurance against a volcano eruption while living in Iowa – it could happen, but if it did, there would be bigger fish to fry.

Having known multiple people whose lives were torn apart because of a lack of a method to pay for long term care or to help out with income under a long term disability, I can clearly see the cases for such insurance.

Yet I’m left wondering if I really need it – or if I’ve been convinced that I need it by reading a number of very conservative personal finance writers (and, I suppose, potential insurance salespeople).

In the end, though, my friend was right: personal finance books were the source for my interest in such insurance. But they were also the source of a lot of other great ideas I’ve applied positively in my life: spending less than I earn, managing my money better, cutting my spending, planning for the future effectively, and so on.

How can I know what advice really applies well in my own life? Here are some tactics I’m applying as I dig further into this insurance question.

Always do your own research before making a move. I might read that long term care insurance is a good idea in a book or two, but that shouldn’t be enough to just blindly go ahead and get that insurance. Instead, it’s merely a starting point for further investigation. Dig into the details of any such advice you might follow. In my case, I’ll want to know what that insurance actually covers, when it takes effect, and what sorts of loopholes exist.

Never absolutely trust any single source of information. Just because a personal finance book or two or a columnist or two claims something is a good idea for me doesn’t mean that it is. Again, I need to look at the specific situation of my own life and figure out if I actually need such things – or if my money might not be better spent shoring up our financial situation in other ways.

Know that there are risks and costs associated with anything – nothing is a sure thing – and know your tolerance for risk. There are no guarantees in life, period. The best we can do is consider our situations and make realistic assumptions about what’s likely to happen and what’s not likely to happen and then use that as the basis for future choices. Is there a likely need for long term care for me? No. Is there a possible need for long term care for me? Yes. The question is how much of a risk it is – and what the consequences are on both sides of that bet.

The interesting part about this is that two people in the exact same situation might come to different conclusions here simply because they have different risk tolerances. I know, for example, that my risk tolerance is relatively low, so I might find that such insurance is right for me, while someone else might have a higher risk tolerance and might find it’s not right for them.

Never be afraid to ask for help. By this, I don’t just mean turning to personal finance professionals – although they can be useful. I’m talking about turning to family members and friends for advice. I’m talking about sitting down with your partner and talking through these tough decisions.

We don’t have to go it alone when we’re making choices like these. If you’re unsure after doing your own legwork, don’t be afraid to talk it out.

You might find that, in the end, you’re being too cautious. Or you might find you’re not being cautious enough. Either way, you’ve done the work to find the right answer for you, and that’s a success no matter how it turns out.

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50 thoughts on “Riding the Line of Overcautiousness

  1. Studenomics says:

    I have to admit that one of the greatest benefits of running a personal finance blog is the community that one builds. The community is usually full of people with similar interests and people from various different areas of life. A typical reader base/community for any blog will consist of some very intelligent people that can help you answer some very important questions bias free. With over 50,000 readers I’m sure you have reached the point where your best advice comes from your readers.

    I’m just curious about what is the best advice you or any of your readers have obtained from fellow readers?

  2. dave says:

    I am currently going through the same analysis, but with long term disability and 30 year term life insurance. I haven’t gotten to long term care yet. It’s a tough decision to fork over not an insignificant sum of money every month for peace of mind. I think the long term disability is useful because if you do become disabled, the last thing you want to worry about is feeding your family. And I don’t think there would be “bigger fish to fry” than feeding your family. That would probably be the biggest thing on my mind in that scenario. All the anti-personal insurance product writings I’ve read have been about annuities and universal life which have exorbitant fees and don’t really help you save for retirement, and personal accident insurance which is so specific it’s not very useful. My biggest concern with insurance is dealing with an insurance company that will say to me “you can still use one limb, so you’re denied.” Or that the company goes out of business.

  3. Anastasia says:

    I think so long as your income is vital to the financial security of your family, long term disability insurance makes a lot of sense. If you’ve saved so much money that your family would be fine if you’ve effectively retired, then it’s not really necessary.

  4. Collleen says:

    I recently had a similar experience — basically my research led me to the conclusion (which my father-in-law the financial planner seconded) that long term care insurance really only makes sense if you have a very large amount of assets. Otherwise it just doesn’t make that much sense.

  5. Laura says:

    Long-term care insurance has been on my list of thing to research for a couple of years, but I never have any extra time for it. Could you give a summary of what you know, best offerings & costs, etc? Would be very helpful! Thanks!!

  6. Scotty says:

    Insurance in almost any scenario is essentially buying peace of mind to mitigate risk. It’s ultimately up to you to assess that risk and the cost of such insurance.

    I have LTD insurance as part of my benefits package at work, so I don’t much think about it – I just have it. But for me, I’d probably end up getting it if my employer didn’t provide it. For me, the most upfront reason is that I ride motorcycles, so the chances of me getting injured to an extent where I might be disabled for a long period of time are greater than average. Plus, I’m a healthy young male, so from the few quotes I’ve gotten in the past, it doesn’t cost much (and insurance is generally a bit cheaper up here in Canada due to obviously lower health-care costs).

    It’s like buying an extended warranty on a car or TV, you’re paying for peace of mind for a certain period of time to help mitigate a certain level of risk. Whether it’s truly worth it is something that you, and only you can decide. This is all that insurance really boils down to. Since you run a home based business and have a generally non-physical career, I imagine that in many disability cases, you’d still be able to work (versus being in a physical trade where something like a broken leg is a show stopper).

    Again, only you can decide if it’s worth it to you.

  7. Chris Clark says:

    The December issue of Kiplinger’s had an interesting article about long term care insurance and the differing costs and levels that there are. You can apparently get long-term care insurance that covers a set amount per day for your care. If you research local facilities, you can pick an amount that maybe covers close to what you would need as Iowa may be cheaper than New York or some other more metropolitan area. You can also get policies that cover care only and they you/your family are responsible for room and board. Maybe not the perfect solution but, it does at least cover part of the care.

  8. Michael says:

    I have attended a conference about LTC before, and I recommend against it for men. The mean payout is 60-70% of the premiums! For women it is a good deal if purchased at the right age as their mean payout is over 100% of premiums.

  9. Chris says:

    It is all about risk, obviously. Insurance (usually) is not an investment. You just need to look at the likelihood of becoming incapacitated and losing your income. The likelihood of you becoming disabled or in a nursing home at some point in your life is much higher (I believe, but don’t have the proof) than our house burning down, but we buy insurance for our homes, don’t we?

    Only insure that which you cannot afford to lose. If you have enough of a war chest and multiple streams of income to offset an incapacitation, then I would say negat on the disability and LTC insurance. If that is NOT your situation, it may make sense to buy those products and hope like hell you never have to use them.

    FYI. My mom was diagnosed with Multiple Sclerosis and THANK GOD she bought long-term disability insurance. We, of course, now wish she had bought LTC insurance as well. As you know, once you are diagnosed, your options for insurance are slammed shut.

    BTW – Living in Iowa the propensity, though still minimal, to develop MS is MUCH higher than the rest of the country. If you are of Nordic/German decent like most Iowegans, I’d cover my arse.

    Also (and then I promise I’ll shut up) – You can buy annuities with LTC riders that are often cheaper than buying a LTC policy by itself. Of course you are still buying an annuity, and fee-conscious people might balk, but the case for annuities (particularly in this economic environment) might hold some merit. Throwing a LTC rider for an additional 15 bps is NOT that much money.

    Something to chew on..

  10. Debbie M says:

    I have decided against long-term care and for long-term disability. The former is extremely expensive for what you get. And in the policies I was looking at, although your premiums didn’t go up, the payouts didn’t either, so by the time I was old, inflation would have reduced the payouts to laughably small amounts.

    I don’t actually have a plan for how I would deal with needing long-term care. So I just try to stay healthy, don’t take stupid risks, and build up savings.

    Long-term disability I like because it’s cheap and could pay a lot of money and come in very handy. People of all ages can have one injury or something that keeps them from working for a while. It’s actually insurance in case you can’t work, so once you have enough savings that you don’t need to work or if you could live off only your spouse’s income, you don’t need this.

    Short-term disability I don’t like. I have enough vacation leave accrued to pay for that. And if I didn’t, I’d rather use savings than pay for this insurance, which seems expensive.

  11. Frugal Dad says:

    Trent, you are familiar with what’s happened to my mom recently, but for others I’ll share a “Readers Digest” version.

    At 53 years young my mom suffered an aneurysm and stroke that has left her paralyzed on her right side and wheelchair-bound. In five months she has burned through her emergency fund, burned through FMLA securing her job in the high five figures where she had worked for twelve years, and basically left her with nothing. A greater concern now is her ongoing care and how we will pay for it since she had no long-term care insurance. Fortunately, she had long-term disability in place to replace 60% of her income, but that doesn’t kick in until a six-month waiting period from her last paycheck.

    I share all this because the entire ordeal has significantly affected my own risk tolerance, and obviously it has affected us financially, too. You hear about things like this all the time, but when it happens to your own family is makes it all very real.

  12. Neal Frankle says:

    Great analysis.

    I actually sell long term care to some of my clients. Usually, only 1 in 15 really need it based on their financial situation so I don’t sell much of it. And in my entire career, I’ve had only 1 person who actually had a claim. Of course, that’s not a statistic you can make a decision on but it might be interesting to some.

    In most cases, I discourage people from buying it. But I think its great that you spoke to your friend and got good objective advice.

  13. Faculties says:

    I used to work in the insurance industry — though I’m not a lackey, and I personally think insurance ought to be cheaper and more available. But having seen things from the inside, I do think a lot of people don’t realize how likely disability is. The statistics are that one in three people will have a period of disability during their working life, for an average of six months. It could be a broken leg, it could be a heart attack, it could be something else. When I think about my own family, my father was disabled for over a year, and I myself had to take a leave of absence for three months of disability. Unfortunately I also know someone who had the same misfortune as Frugal Dad’s mother, above, and who didn’t have disability and is now having a very hard time. So I personally wouldn’t risk not getting disability insurance. Like life insurance, you may not need it, you hope you won’t, but if you do, it can be a godsend. Note that you can lower the cost significantly by choosing a longer initial waiting period, and that you want “own-occ” (own occupation), which will pay if you can’t do your own job, not just any job. If you don’t get own-occ, you won’t get a payout unless they deem you incapable of working at *any* job, e.g. McDonald’s.

  14. Sarah says:

    You may be on the young side for LTC insurance to make sense, Trent, but LTD? Absolutely. Social security disability payments are poverty-level (and take obscene amounts of time to kick in; denials are routine on first application), and you will have extra expenses to worry about when you’re ill. Just shop carefully and make sure to get own-occupation coverage (as mentioned above). Pay with post-tax dollars so you won’t owe taxes on the payout (yes, you’ll be in a lower income bracket, most likely, but you’ll want every dollar then). With a strong emergency fund you can probably save a little by making the elimination period a little longer.

  15. Evangeline says:

    The key to this entire dilemma is preparation. How you choose to prepare is a personal matter–insurance, a massive amount of savings,etc. However, choosing to ‘live a healthy life and not take stupid risks’ should not be an option. Today, I am waiting for the phone call that tells me a very dear friend will arrive at a nursing home because there simply is no money for him to hire 24 hour private nursing. It is absolutely the most heartbreaking thing to watch because he has lived in the same home for 70 years and now has to let go of the life he once lived. He didn’t mean to neglect this part of his financial plan–he simply thought he’d live a healthy life and be very cautious in his golden years but it wasn’t enough. Selling every one of his assets will not net enough to provide even a year of private care. Word to the wise–Encourage yourself, your loved ones and all around you to prepare for the future in whatever manner they choose–just prepare.

  16. Amanda says:

    Many great points here, I saw something on this last evening on TV. Some good points mentioned were: medicare limits your options on choosing your own care AND you must go through ALL of your assets (meaning spend down to zero) to qualify. This is absolutely true. Your family would be left with nothing in order to qualify.

    Another fair point is can you afford the real cost of long term care–say $6,000/month vs. spending $5,000 a year for the insurance? That said, the other commenters have made valid points–actually getting the coverage to pay out can be difficult, also these companies often go out of business, and they frequently deny coverage & string out approving what is clearly a qualifying event. Think about regular health insurance, but worse. Hard to imagine.

    A tough decision, but if you can afford it, I would do it. Leaving your family asset-less is a horrible situation when you’re both young.

  17. Steve says:

    +1 to “insure that which you cannot afford to lose.”

    I don’t have life insurance right now because my family consists only of my wife, who could support herself if I were not around. When we have a family and our expenses go up, then we will get life insurance on both of us because the family would struggle financially with either of us gone.

    Our car insurance is liability coverage only. If our car was totaled we could handle it. But it someone sued us for hundreds of thousands of dollars, we would be dead in the water without insurance.

    So I echo the commenters who say that long term disability is a good idea. It’s not about peace of mind, it’s about covering a risk you can’t cover with other funds. I am looking into a policy myself. I guess if it’s exhorbitantly expensive I won’t do it.

    On the other hand LTC insurance seems a bit iffier to me. Sure, if you end up in a nursing home the rest of your life, you would be in trouble. But that seems exceedingly unlikely. It seems more likely from what I’ve read that if one ends up in a nursing home, it’s only for a year or less. Something that would hurt, yes, but if you could cover it with your savings… (or the savings you could build up by putting your “premium” in the bank instead)

  18. Brian Tate says:

    I consider life and LTD insurance a necessary evil. As a self-employed person, such as yourself, these are a cost of doing business.
    The trick is to make sure you buy only the amount you need to mitigate the risk of being unemployed or hurt and to control your costs.
    Good luck in your search.

    Brian

  19. Eric says:

    In short, if you can afford it and it’ll help you sleep better at night and it isn’t made of snake oil, go ahead and buy the insurance. As usual, get educated about all of the pros and cons of it though.

  20. Saver Queen says:

    I’m actually surprised at your friend for dismissing something so obviously important.

    I find Gail Vaz-Oxlade’s website a tremendous resource of free advice and she certainly has a lot to say on various forms of disability – a very trustworthy, reliable source. I read her blog every day.

    I also recommend going to a local credit union where no one works on commission.

  21. Debbie M says:

    In response to Evangeline, I know that just trying to stay safe and healthy isn’t good enough. But I can’t afford long-term care insurance and I couldn’t afford long-term care, either.

    If you think think I could afford long-term care insurance if I really wanted to, you’re right. But I would have to live with even more paying roommates (or be homeless), get rid of my cheap car, never go on vacation, etc. in addition to continuing to buy most of my clothing at thrift shops, make my own meals, get my books from the library, exercise on my own rather than at a gym or with videos, etc.

    In short, I must not really want it–I’d rather take the risk. So, I mitigate that risk as best I can, even though my best is pretty pathetic.

  22. kellzzz says:

    Trent, I don’t know enough about LTC insurance to give advice, but my experience screams YES on disability insurance.

    I was in a rollover car accident six weeks after my 30th birthday and woke up quadriplegic. I had LTD insurance through my employer at the time which provided 2/3 of my base salary as well as my group health insurance. I’ve since lost coverage and am now living on Social Security–a difference of $600/month which has me living with my parents.

    Anyone who can possibly afford the premiums needs LTD coverage.

  23. Anne says:

    Once/if you make a decision on LTC or LTD insurance could you post your notes on the subject? I got most of my good info from Gail Vaz Oxlade (and lots more information from industry sites) and would love another perspective. I have LTD through work but I’ve started putting out requests for quotes because I don’t think it’s comprehensive enough if the hypothetical disability was permanent.

    I’m single with no need for life insurance in the near to mid-future so I consider it a good investment for me. I also like the idea of it transferring between jobs because I’m pretty young and probably have a handful of job changes in my future.

  24. One in two people will require long term care during their lifetime, so yes it is VERY important, and then younger you start the less it costs.

  25. Erin says:

    I wonder if your friend who dismissed the need for LTD insurance has life insurance? Because statistically you are much more likely to become disabled than to die. So if you have to choose between the two LTD would actually make more sense. I don’t actually know much about long term care insurance, although the little I have read gave me the impression it doesn’t usually make sense for younger people in their 20s and 30s.

    I would also caution people who assume that if they have LTD insurance through their job they are okay. First, if you leave or get laid off then obviously you don’t have it anymore. Second, look into what the coverage actually is. It may not be very good – there may be a significant gap between coverage and what you would need to get by that may make it worthwhile to buy supplemental LTD insurance. It’s typically not very expensive – probably $25-$60 a month depending on what kind of policy you get and your age.

  26. KoryO says:

    Trent, aren’t you in your thirties? That’s a bit young to consider whether or not you need LTC insurance unless you have a bad family history of people getting incapacitated long before they are in their sixties. You might want to revisit that option when you are fifty, but right now you are probably jumping the gun.

    But disability? Come on. You have young kids. Unless you know for a fact that your wife will make enough to support all of you, never get laid off, and will get hefty raises until the kids get to college to absorb all of your additional expenses (more on that later), you are risking a hell of a lot to save a few bucks each month. I don’t care if you eat healthy, exercise and are a paragon of vitality…..all it takes is one doofus not paying attention at the wheel, and you end up crippled for the rest of your life.

    (No offense to any Iowa natives here, but after seeing how they drive on the road, I’m not willing to chance it. There are some scary folks out on the highways here!)

    I don’t care if you ended up quadriplegic, social security WILL deny your application on the first round. I worked for a state pension plan that also handled disability payouts. The guy running our disability side NEVER heard of social security approving a claim the first time, and he handled more than 1000 people at any given moment.

    It could literally take two years for them to approve a payout if you are eligible. Meanwhile, you or someone else is going to have to pay for all of the doctors’ visits (you think ONE visit to ONE doctor is going to prove to them that you can’t work? Guess again!), medicine for various symptoms, physical/occupational/you name it therapies, specialized medical equipment to assist you in getting around or just being comfortable (wheelchairs, hospital-type adjustable beds, etc.), transportation to different medical facilities, etc. This is the “additional expense” part I alluded to earlier, and by no means is this a complete tally of things you can expect to pay for.

    Get the insurance, pay for it with after-tax money, and just hope that you never need it.

  27. Sarah says:

    I’d be very interested to know what your friend’s explanations were for why you didn’t need insurance, especially LTD.

  28. dave says:

    If you are in your thirties the need to buy long term care insurance shouldn’t be a priority unless health issues at a young age run in your family.Looking to the future though LTC insurance can be used quite effectivly for asset preservation, particularly in states with LTC Partnership programs. The average length of time spent in assisted care facilities once admitted is around 4 years. Have an agent run an analysis of a program you are comfortable with to see how long it would take to recoup your premiums. At $120. a day on up you can burn through a lot of assets in a hurry if in a long term care facility. Be sure your agent explains all the options of LTC clearly since their are so many different scenarios.

  29. Michael says:

    Erin, actually, one is more likely to die than to become disabled. The chance a person will die is 100%. I know what you meant, thought. :)

  30. Jim says:

    I echo the folks who say that LTD is important. And I’m also curious how your friend dismissed it as unneeded.

    Here’s a page full of stats on disability likeliness:
    http://www.disabilitycanhappen.org/chances_disability/disability_stats.asp
    And heres one stat to chew on:
    “# An illness or accident will keep 1 in 5 workers out of work for at least a year before the age of 65.
    Life and Health Insurance Foundation for Education, November 2005:

    LTC is less vital in my opinion and really mostly useful for people nearing retirement age. ALso from what I’ve seen the practicality of LTC is questionable as they seem fairly pricey and don’t seem to pay out all that much.

  31. Carrie says:

    What KoryO @ 1;15 pm said. LTD is essential if you’re the breadwinner or (like me) single. LTC is iffier. At your age, I think LTC would be overkill. I did buy LTC insurance for my 62 year old Mom, though.

  32. Bobbi says:

    Trent:
    My husband and I are in our early 60s – much older than you. Five years ago we bought a combination life insurance/long-term care insurance policy. It will pay $100,000 death benefit or $100,000 in long-term care benefits (for each of us). How you use the benefits is up to you – nursing home, in-home care, something inbetween. Our premium for this policy is reasonable and does not increase as we age. The benefits do not decrease as we get older. So far, so good for us and we are hoping to keep the policy until our beneficiaries benefit. :-) If you are interested in the provider let me know. (I don’t work for them or get any benefit for a referral.)

  33. Valerie says:

    Bobbi, I’d sure be interested in that provider, if you didn’t mind telling me. I’m researching life and disability insurance for myself. mulewagon@yahoo.com

  34. Trent, what you are looking for is Security. If you haven’t seen this article you should check it out:

    http://www.wisebread.com/security-is-an-illusion-freedom-is-real

    -Nate

  35. John says:

    I helped impliment LTC where I work, it is complicated with lots of options. You should be better off if you can get LTC through a group ie teachers assoiation, as you have mentioned your wife was a teacher). I found a LTC company if you was young you could pay it off in 5, 10, 20, yearsa or by 65 yrs old. MY advise only insure what you can’t afford to pay yourself.

  36. Hogan says:

    Trent: I don’t think you can buy long term care insurance until you are at least 55 years of age, you got a ways to go.

    @Kory you must be from Omaha (maybe Minneapolis) because of your attitudes about Iowa drivers. Iowa has nothing to do with it, maybe it could be any rural person not used to driving on busy streets coming to your town to spend money in your big city. So the next time an Iowan brakes suddenly in front of you because they are lost remember that they are just like any other person driving in a city they are not used to driving in on a daily basis including your drivers from Valentine.

  37. Sharon says:

    Steve, if you know you will be having a family, it can pay to get life insurance now. First, you may become ineligible for life insurance quite suddenly, leaving your children uninsured. Secondly, young people in their 20s can come out ahead to buy a universal or whole life policy, if you hang on to it. Many of these policies can change to annuities, or provide for long term care, or home care in the end of your life. You will never be in your early 20s again, and the additional costs of higher and higher premiums as you age will be something to factor in.

    In addition, should you become uninsurable in the future, or unemployed, etc., quit paying premiums when you move and your mail isn’t forwarded or any of a variety of unwanted events happen, you could once again end up uninsured and uninsurable.

    Whenever you buy a policy, and we do have whole life and universal life, get the disability rider. If you become disabled, the premiums continue to get paid at no cost to you.

  38. Sheila says:

    Go with the LTD. I utilized it while I was going through the breast cancer treatment. I continue to pay for it. It gives me peace of mind.

  39. Dan says:

    I’m not a fan of optional insurance. The insurance companies are selling you the insurance so that they can make money. That means that it is a bad deal for you.

    Also, these companies make bigger profits if they deny you coverage you deserve. They have people whose job it is to deny as much as possible. Before my mother-in-law retired, her job was to write up letters to deny people coverage which she could see the people should have received. I don’t trust insurance companies.

    Reading the story of the poor quadriplegic gentlreman in comment 22 above, he states that he had LTD insurance through his work but later got cut off. Doesn’t that tell you everything you need to know about the reliability of insurance companies?

  40. Trent,

    I am going to simplify this– if you want more info contact me directly through my email.

    At your age, the disability insurance to age 65 makes the most sense.

    As for the long term care insurance, wait until you reach about age 50.

  41. NYC reader says:

    I’m going to be dissenting on the LTC insurance issue. Depending upon your specific situation, it can be just as important as own-occupation LTD.

    Don’t assume that you will only need LT care at the end of your long life.

    Look at comment #22. Kellzzz became a quadriplegic at age 30 and is now living with her/his parents. What care options are available in this situation after the parents are unable to provide care or deceased? That 60% disability insurance payment (not indexed for inflation) plus whatever SS disability Kellzzz is receiving won’t cover the cost of a nursing home. Kellzzz will have to apply for and receive Medicaid, meaning nearly all assets have to be depleted, and the disability insurance payout will be going to the government as condition of receiving Medicaid.

    If you’ve ever had to navigate the world of extended care/custodial care for a loved one, it is a rude ugly awakening. The best care facilities don’t want to take Medicaid patients, and often require upfront payments for a set period of time from patient assets (typically three years) before accepting Medicaid. The institutions that take Medicaid right off the bat are ones you never ever want to be stuck in.

    Also, many LTC policies (such as the one I have) cover in-home care and respite care (giving family caregivers time off). My policy pays 75% of the institutional rate for in-home care, and provides 30 days/year of respite care. In-home care usually provides a much higher quality of life for the recipient than being in an institution. My policy also covers informal caregivers (such as family and neighbors) at the 75% rate. This is important, because family members often work fewer hours or not at all to take care of a loved one, and their income stream suffers. The only policy limitation is one year for informal caregivers who normally live with the patient (e.g. a spouse).

    Another thing to look for in LTC policies is a weekly benefit. Let’s say you buy a policy which pays $100/day. If you receive $600 services on one day, and nothing the other six days of the week, you’re on the hook for $500 out-of-pocket. If you have a $100/day policy with a weekly benefit, you have $700 a week for services no matter how they are spread out during the week. The weekly benefit is a really tiny extra cost (maybe a few dollars/month) and well worth it.

    As several readers have noted, don’t count on SS disability to be approved on the first try, and definitely don’t expect it to be approved in a timely manner. A 53-year old neighbor recently became unable to work (she was a teacher) due to ongoing cancer treatments. She applied for SS disability and was told it would take a minimum of five months for a decision (not APPROVAL, merely a DECISION). Her financial situation was not good, because she had been incurring extensive medical expenses for the prior three years and had been working a reduced schedule for the past two years (she had already used a full paid year of sabbatical leave to cover her first round of treatment). Her condition worsened, she borrowed money from everyone she knew to cover her medical bills (and we knew she oould never pay it back, so we treated the money as gifts), friends and family became caregivers, and she ultimately ended up with hospice care at home. She died before ever getting a penny of SS disability, even after contacting her Congressperson for assistance.

    A work colleague was hit by a car while bicycling. He was found on the road hours later, unconscious, with many injuries including a fractured skull and brain damage. After a few weeks in a hospital treating his injuries, he spent five months in a rehab hospital relearning to walk, talk, and use his hands. He made an amazing recovery, although he still has cognitive changes and deficits apparent to those who knew him before the accident. He had an LTC policy with a 30-day waiting period. The waiting period started while he was still in the hospital. As a result, he received benefits from the LTC insurance while in rehab.

    Critical things to look at/look for in LTC policies beyond the things I’ve already mentioned:

    Waiting period: How long before the benefits start, longer waiting period = lower premiums. Your emergency fund should cover this period, make sure it’s adequate.

    Daily benefit rate: Higher benefits = higher premiums. Know the cost for LT care in your locality.

    Weekly benefit: As I explained above, it adds a few dollars/month to the premium, I think it’s worth it.

    Inflation protection: Ouch. No easy way around this one. You can either buy LTC insurance with escalating premiums (age-based) to cover increasing daily benefit amounts, or buy a policy that has level premiums and an automatic escalating benefit (high premiums at the outset, but inflation will make them seem more affordable as time goes on). Depends on your age/financial situation.

    Lifetime benefit limit/benefit period: These two are related. Unlimited benefit period costs more, but you’ll never run out of money. Once you’ve hit the lifetime benefit limit and/or benefit period (e.g. 5 year period), you won’t be getting money from the insurance. If you’re 80, it’s not likely you’ll need more than 5 years. If you’re 30 and have a rollover accident like Kellzzz, you definitely want the unlimited benefit period, so decide based on your age, circumstances, and finances.

    Facilities-only or comprehensive: Facilities-only covers care only in an institution. Comprehensive includes home-based care and adult day care, which are much more likely to be needed for most people.

    ADL: Activities of Daily Living. This is a measure of ability to do various tasks related to taking care of oneself, such as bathing, toileting, dressing, continence, transferring from a bed to a chair, feeding oneself, cognitive ability, etc. Insurance kicks in when you are unable to do X number of ADLs, as certified by doctor. The X number is important, some insurance kicks in at 3 or 4 ADLs, some at 6. Fewer required ADLs are better.

    Exclusions: The fine print that can burn you. Read this really carefully. Most policies I’m aware of exclude acts of war and terrorism, although the LTC policy for US federal employees and military specifically does NOT exclude these.

    If your state has an LTC partnership (NY does), check out the insurance offerings, they may be better than what you can get on your own or via your job/group affiliation.

  42. Sheila says:

    While trying to optimize your health is, of course, a wonderful idea and helps in preventing many health problems, it doesn’t prevent the diseases that you have no control over. I developed a movement disorder and could no longer work. I didn’t have LTD. It took me over two years to get SSD (after the initial denial), and, frankly, I’m sure I couldn’t live independently on that amount of money if I was single. I encourage my biological children to get LTD insurance because there’s a chance of a genetic component to my disorder. We pay for LTD for my husband (through his work) because we’ve already experienced what life is like with someone with a disability and no income.

  43. Erin says:

    As someone pointed out, what I should have said is that you are statistically more likely to become disabled and unable to work at a relatively young age than you are to die at a young age. :)

  44. The funny thing about long term care insurance is that the price of a policy can vary a lot from one insurance company to the next. Each long term care policy has a different way of charging premium based upon health history, marital status, choice of benefits, and even state of residence.

    There are some long term care insurance policies from A+ rated companies that are LITERALLY twice as expensive as identical policies from other A+ rated insurers. It pays to shop.

    What most people don’t realize is that group (association and employer-based policies) are usually more expensive and have less benefits (particularly less benefits for home healthcare) than individual policies. It pays to shop and compare all types of insurance, but especially long term care insurance.

    Scott A. Olson

  45. Chris says:

    @ Dan #37

    I don’t understand why we demonize financial companies for making money. Cost is only an issue in the absence of value. If you don’t find the cost is worth what you get for something, don’t buy it. But, PLEASE don’t beat up on financial companies for trying to turn a profit. Do you know what the mark-up is on a bag of Cheetos?

  46. Jerry says:

    @Chris #42
    One huge reason people demonize financial (especially insurance) companies is because the manufacturer or reseller of Cheetos does not devote entire departments and legal teams to denying you your bag of Cheetos after you have paid for it. Insurance companies by definition make more money when they deny claims. In many documented cases, they deny clearly valid claims, knowing that a percentage of those people will not appeal. Of the many who appeal, roughly 200,000 per year, more than 1/3 are ruled in favor of the consumer. Many denied appeals do not necessarily lose on merit, but for other reasons. See the stats on the National Association of Insurance Commissioners website at https://eapps.naic.org/documents/cis_aggregate_complaints_by_coverage_types.pdf

  47. Lou says:

    My husband and i conscientiously spent a lot of our disposable income on additional professional education for each of us, on the theory that what is in your head can’t be taken away from you. I was a college professor, 7 years from retirement, when a slate blackboard in my classroom (that’s 4ft x 6ft x 1/2″ of ROCK) came loose from the wall and landed on my head. “Moderate” traumatic brain injury ended my teaching career, my income and my contributions to my retirement fund. Long-term disability insurance was not a part of the benefits package at my university. Since there was no negligence on the part of the college, I was not eligible for Workers’ compendation. Believe me, at your age, and with small children, you need long-term disability insurance.

  48. Courtney says:

    My mother-in-law was the primary earner for her household. She had an incident that left her permanently disabled, and in the hospital for a year. No, I’m not kidding – a year. Thank god she had good health insurance, and long-term-disability insurance. After she got out of the hospital, it took TWO YEARS for social security disability to kick in. That’s the required waiting period under fedeal law. Of course, her job fired her, since she couldn’t work. She had AFLAC coverage for hospitalization, as well. What were my in-laws to live on while she was in the hospital? Or at home, disabled, without income?

    You betcha my husband has LTD insurance. That’s a no brainer in our household.

    As for LTC, the jury is still out on that one.

  49. wanda says:

    It is regrettable that many individuals who offer opinions for/against something do so with inadequate information………….there is much misinformation given in many of the preceding comments about long term care insurance. The most blatant is that it is “expensive”. …… ..expense is a relative thing! The dinner my husband and I enjoyed on February 14 at a pricey steak house to celebrate Valentines day was expensive relative to a meal at McDonald’s. However, it was a bargain relative to buying the steak house. Cars are “expensive” yet I see no shortage of cars on the roads I travel every day! Expense is not the issue, one should be concerned with VALUE. Am I getting value for what I am spending. All insurance types are tools to leverage dollars and hedge risk. One must determine if it makes sense to let someone else cover the $6000/month fee that care costs today in many parts of the country (and which will double in 15 years) by paying an annual premium which is much less. One must also find a SPECIALIST in long term care planning with whom to have this discussion. The only real specialists on this subject in the US have the credentials, CLTC behind their name. This means they are “certified” by the Corporation for Certification of Long Term Care, and they were not only trained once, but maintain their training/knowledge ongoing. For most people, all premiums paid over their lifetime will be returned in 6-9 months of receiving long term care benefits, assuming benefit increase option (also called inflation protection) was a part of the plan. A very important piece of legislation which has been passed at a Federal Level, and which is being acted on state by state which is a GAME CHANGER for the purchase of long term care insurance addresses the issue of spending all of one’s own assets and then becoming a ward of the state without insurance. Some states now grant dollar for dollar asset protection for owning private long term care insurance. Instead of having to spend your way to poverty (having less than $2000 to your name) the state will allow you to keep assets that are equal to the amount of benefits you have received from your private long term care insurance. The details of the law vary from state to state, and about 30 states still need to act, but with Medicaid (“aid to the poor”) budgets going bust in many states, you can bet most states will follow suit and adopt this law, which establishes what are called “Partnership Long Term Care Plans”. While the observation of one responder above was accurate in refering to the fact that men are less likely to need this protection than women, families currently caring for a male family member after a health care disaster would tell you statistics don’t matter. The aging population and the catch 22 of modern medicine does support that 7 of 10 individuals in the US who reach age 65 will need some care at some point in their lifetime. I also think many people find this subject distateful becuse they interpret “long term care” to mean “nursing home care”. NOT TRUE – long term care is when a person has lost independence with activities of daily living and needs help from another person to do basic activities, and will need that care for 3 months or longer. There are many Iraq war veterans who now meet this definition and get care at home. Couples who are fortunate enough to be advised by a long term care planning specialist may learn that there are some carriers that allow a single policy to cover both husband and wife. This more flexible plan means that benefit dollars can be used by the person who needs them, and significantly reduces the risk that benefits won’t be used at all. Another option now available is a universal life insurance policy with a long term care rider. This type of coverage addresses the “what if I never use it” concern as the estate always wins……….either the estate receives a death benefit, or someone else pays for the individual’s care needs, preserving the estate assets, or perhaps both. Long term care insurance is an important part of EVERY Financial Plan. If you work with a financial advisor who has not broached the subject with you, I would change to one who understands this component of the financil plan. If you are fortunate enough to work with an advisor who understands this, or has access to a planning specialist to consult with his clients, then you should perhaps listen to what these folks have to say. They can explain the way policies work, help you choose a reputable carrier, and help you navigate the underwriting process successfully. (If you wait until your health has begun to deteriorate, as often happens with age, you may become uninsurable.) A reputable advisor would never recommend more coverage than you need, or coverage that is affordable, and in fact should present you with a number of options for funding the premium.
    Wow……..I have given you alot to chew on, but I do trust it is useful to one person.

  50. wanda says:

    One more important comment, another writer referred to “Medicare” when I believe they intended “Medicaid”. Simple way to distinguish these 2. Medicare is the health CARE insurance we all purchase now through payroll tax deductions and kicks in at 65. It is short term health care insurance, just like you have now, likely through your employer. It pays only for rehabilitation, skilled medical services under very strict criteria, and for a limited time. Medicaid, is an AID program for the indigent/needy……….it is a needs based health insurance program for the indigent of all ages. It was never intended to pay for those who can pay for themselves and the balanced budget act of a few years ago made it harder than ever to qualify for this benefit. Qualifications include amount of home equity, monthly income, and total assets. Each state varies somewhat, you can check with the county you live in to find out what the rules are there. Seniors who want Medicaid benefits most often have to receive these benefits in a nursing home of the state’s choosing, losing the option to stay at home.

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