The Basics of Long-Term Care
The Basics of Long-Term Care
January 10, 2019

So what are the basics of long-term care?

First, let’s step back: you are insured, right?

Most people own auto insurance.

The odds of having a car accident are 0.33% (or 3 in 900).

Most people own fire insurance for their homes.

The odds of having a residential fire are 0.77% (or 7 in 900).

Most people own health insurance.

The odds of being admitted to a critical care unit are 2.3% (or 21 in 900).

But most people do not own long-term care insurance.

The odds of needing long-term care is 70% (or 630 in 900).

Today, the cost of a long-term care event in California is in the range of $180,000 to $280,000. Obviously, the cost will depend on the length of time and type of care required, but a typical long-term care event will last 4 to 5 years (because you either get better or you die).

In the next 20 years, the projected cost of a long-term care event in California, and likely the rest of the United States, will increase dramatically, rising to a range between $400,000 to $625,000.

If you are part of that 70% without life insurance, the question then becomes: “which assets do you want to sell first when you have a long-term care event?” Or, for pennies on the dollar, you can protect the depletion of your estate by purchasing a long-term care (LTC) policy. How many people get in serious car accidents and don’t make an insurance claim and then must pay to have the car repaired out of pocket?

Today, the traditional LTC policy isn’t being purchased. Instead, people are buying a hybrid LTC policy, which has both long-term care protection and a death benefit in one product. If you don’t end up needing that long-term care, then your beneficiaries get a tax-free death benefit. That way, your insurance premiums were not wasted.

Even very wealthy people who can easily afford to cover a long-term care event out of their savings are buying hybrid LTC policies. Put simply, it just makes financial sense. Why pay dollar-for-dollar when a long-term care event happens? For just pennies on the dollar, you could get that same protection and have an insurance company pay all the costs.

Beyond just the basics of long-term care, an LTC policy pays a tax-free benefit if the insured cannot do two out of the six activities of daily living (ADL).

    1. Bathing: getting in and out of a tub or shower
    2. Dressing: putting on and removing clothing, braces, fasteners, artificial limbs
    3. Transferring: getting in or out of a bed, chair, or wheelchair
    4. Eating: unable to feed self from a container or a feeding tube or intravenously
    5. Toileting: getting to and from a toilet and performing associated personal hygiene
    6. Continence: unable to maintain control of bowel or bladder function, performing associated personal hygiene (including caring for catheter or colostomy bag)