Ask yourself an important question, “Am I financially prepared for my own long term care?” Unfortunately, there is a widespread lack of long term care financial preparedness on the part of most retirees.

I attended a forum where representatives from Medicare, Medicaid, and the Consumers Union spoke about the crisis that exists among our nation’s aging population. Statistically, individuals over the age of 65 face a 50% risk of requiring extended care in a nursing facility or at home some time during their life. The costs of being unprepared for an unexpected long term care event are sobering. With the average annual cost of quality care being $48,000 coupled with the fact that 45% of all long term care stays last at least 3 years, this means an out-of-pocket expense of $144,000 (not counting inflation). There are four basic funding sources for paying this cost of care. They are:

1) Medicare – which only pays for up to 100 days of short term, skilled care – not the kind of custodial care needed over a long period of time.
2) Private Funds – which is determined by the amount of money you have set aside for this expense. Remember, the cost of quality care is approximately $4,000.
3) Medicaid – the federally funded program is the “safety net” for senior and disabled Americans. Current eligibility guidelines allow a person to retain only a small amount of money, but do allow for more generous exempt resources in addition to protections of income and assets for a healthy spouse of a Medicaid recipient.
4) Long Term Care Insurance – the best method of funding the cost of long term care. This special type of health insurance that pays for nursing home or home health care services for individuals requiring assistance with activities of daily living (ADL’s), or persons with a cognitive impairment such as Alzheimer’s or other forms of dementia. To be eligible, one must be in good enough health to be insurable and have sufficient resources to protect, with sufficient income to pay the premiums.

When you address your own long term planning, understand that the best plan for you is probably one that includes several sources of funding. The “blended” plan is often the most effective because it is a balanced approach to long term care financial planning. One person may be able to pay more of his or her own cost of care than another, thereby reducing the risk they want to shift to a long term care (LTC) insurance company. LTC policies extremely flexible in how they can be tailored to meet you individual needs. The basic components of a plan are:

1) The Benefit Amount. This is how much (usually stated in a daily dollar amount) the policy will pay for your care.
2) The Elimination Period. This is how long you are willing to pay for your own care before the policy Benefit Amount starts paying. This is similar to your deductible on other forms of insurance.
3) The Benefit Period. Once the Elimination Period is complete, this tells you how long the Benefit Amount will pay. Some plans will pay for a lifetime, and I recommend a minimum of a four year Benefit Period.
4) Inflation Protection. You may think that a $100 per day benefit amount is sufficient today, but in 10 years at 6 % – 8 % inflation, costs will double. An Inflation Protection feature will raise your Benefit Amount annually and help fight the eroding effect of inflation.
5) Home Health Care Protection. Having this feature means that care can be provided at your home, rather than in an institutional setting. Having this feature means that your LTC insurance actually keeps you out of a nursing home, rather than just pay for a nursing home stay.

And also know that LTC insurance is not suitable for everyone. A long term care insurance premium can be a burden on some individual’s budgets if not designed properly. Other families have accumulated enough wealth that they are prepared and willing to pay for their own cost of care. Most average retirees, however, fall somewhere in between these two extremes.

If you are in generally good health, and feel that you need to develop your own long term plan, I suggest you seek guidance from someone who is knowledgeable of all sources of long term care funding, not just one.

Mr. Gary Crooms is President and founder of Senior Information Services of America®, a long term care financial planning firm that specializes in assisting seniors and their families with late life planning issues. If you have any questions, please contact Mr. Crooms at gary@seniorinformation.com