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Do You Really Need Long-Term Care Insurance?

“There are three kinds of lies: lies, damned lies and statistics.”
                       Benjamin Disraeli (1804–1881), British statesman, author.
Depending upon whose figures you accept, you have somewhere between a 40% to 60% chance of needing, at some point in your life, custodial (i.e. long-term) nursing care as a result of physical disability or mental impairment.1The costs of long-term care vary greatly by geographic area and by the level of care needed, but can range anywhere from between $50,000 to $100,000 (or more) per year. Clearly, paying for the costs of long-term care for even a brief period of time would exhaust the resources of most individuals or families.
So, do you need long-term care insurance? That depends, in part, on how you interpret the statistics. If we accept the premise that, as a group, we have – on average – a 50% chance (the possibility) of requiring custodial nursing care, then we might like to know what the likelihood (the probability) is that as individuals we will fall into this group. In other words, notwithstanding the national averages, what are the chances that you, personally, will become disabled such that you require long-term care? It’s kind of like saying, “The average family has 2.5 children.” Where are the families with half a child? The point here is that averages alone can be deceiving.
This brings us to another critical distinction – that of the average nursing home stay. Nationally, the average time spent in a nursing home is just under three years. So, if we eventually need nursing home care, should we expect to need three years worth of care? Not necessarily. Some of us may become incapacitated at an early age as the result of an auto accident or stroke, for example, and require care for the remainder of our natural lives. Others among us might require nursing care near the end of our lives, and spend perhaps as little as a few months in a facility. The average of these outcomes is approximately three years.
Understanding the mechanics of the averages can help us to determine what amount of insurance might be prudent, given one’s desire to avoid catastrophic financial loss. Which bring us back to our fundamental question: “Do I need long-term care insurance?” The conventional wisdom among critics of long-term care insurance is that it is only needed (if at all) by those of “moderate” financial means: The poor will qualify for Medicaid reimbursement, and the wealthy can afford to self-insure. This argument is absurd, for a couple of reasons. First, given the poor fiscal condition of our largest entitlement programs – Social Security, Medicare, and Medicaid – it seems irresponsible at best to expect the government to continue to reimburse the costs of nursing home care on an ongoing basis. Second, why would someone choose to self-insure, simply because they can afford to? By this logic, no wealthy person should carry fire insurance on his or her home: if it burns down, they can just pay out of pocket to rebuild.
Insurance provides an appropriate mechanism for managing risk. For risks like death, disability, and long-term care, where the possibility of loss is so great – however remote – that the consequences would be financially catastrophic, the best option generally is the purchase of appropriate insurance. Of course, some individuals will not be able to purchase long-term care insurance – either because they are not eligible or because they can not afford it. But those who are eligible and who can afford the coverage ought to consider purchasing long-term care insurance. While the statistical averages regarding the possibility that you may need long-term care are deceptive, the inescapable conclusion is that if you dorequire care, and you don’t have adequate insurance coverage to protect you, the resulting financial loss could be devastating.
An objective, qualified long-term care insurance specialist can help you to cut through the confusion surrounding the appropriate amount of insurance to carry, but you should not overlook or dismiss the importance of or the need for this kind of insurance. Doing so could place you and your loved ones at great risk.
1. P. Kemper and C. Murtaugh, “Lifetime Use of Nursing Home Care” New England Journal of Medicine 324, no.9(February 1991):595; HIAA, 1994.

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