Dear Michael:

We are just turning sixty and feel like we have everything set up for our farm with the exception we have no nursing home insurance. From your experience, what do you find people need to insure for per month and what are the costs associated with this type of coverage?

– LTC Curious

Dear LTC Curious:

I can give you the statistics of probability for needing long-term care someday. With increased life spans and almost eight out of ten people now reaching the age of eighty, the possibility of needing long-term care (longer than ninety days) has now risen to seventy-seven percent. If there are two of you, the chances are ninety-two percent one of you will need long-term care. One in five over age sixty-five will require care longer than five years.

The interesting thing about this is that of this seventy-seven percent, almost fifty percent of those receiving care are receiving care from their spouse. Almost two-thirds of this caregivers are women. The average couple spends two hundred and sixty thousand dollars for care prior to their death.

While it’s true that men typically spend less than nine months in a facility, it doesn’t mean they haven’t been receiving care prior to entry.

From my experience, most men will kick and scream about going to a facility -even though they certainly should be there, and are “on their last legs” when they finally do enter. They’ve just received care from their spouse until then.

As such, it’s a great idea to have long-term care protection that pays you directly rather than paying bills submitted from a facility. Under normal LTC insurance, family members are excluded from receiving payment from insurance for taking care of a spouse or a parent. If the payments are a set amount each month paid to you, you can pay your wife, your child, or a professional caregiver to come into your home.

The biggest reason most people don’t want to buy ‘traditional’ long-term care insurance – a version of health insurance – is they might pay and pay with ever increasing premiums, and never need it. Of course, this applies to other insurance such as car, home or farm, property insurance, health, etc. – any type of insurance providing coverage over a given period of time. No one sends you your car insurance premiums back if you don’t have an accident.

Many long-term care and life insurance companies are evolving so they allow people to buy a block of money. This block of money can be used in a variety of ways because it truly is ‘your’ block of money and you decide how to use it.

Let’s say you do have a need for long-term care expenses. You can access up to four percent of this block of money per month until the block of money is exhausted.

For example, a block of four hundred thousand dollars would provide up to sixteen thousand dollars per month for care costs – paid directly to you so you can choose where or, more importantly, whom you receive your care from.

Average costs are between one and a half percent of the block of money paid over fifteen years (paid up) to two and a half percent if you are sixty-five plus.

You must not be able to do two of six “Activities Of Daily Living” without assistance – eating, bathing, toileting, incontinence, transferring from and to chairs, cars, etc. and dressing yourself. If you can’t do two of these – regardless if you are receiving professional care – you will receive up to $11,500 tax-free every month until the four hundred thousand is gone. You do have to make certain you have an approved care plan as well.

The tax-free aspect is interesting because average costs for the four hundred-thousand-dollar block are between one hundred and two hundred thousand dollars divided by the number of years you want to pay. Most people opt for fifteen years and it’s paid up, with no increase in premiums guaranteed.

Let’s say you live to age eighty-five – eight out of ten people do – and have the policy paid up and owned for fifteen years. You would then become the beneficiary of your own policy by taking forty-thousand dollars per year out of your block of money for ten years, even though it only cost you, say, two hundred thousand.

Around eighty-five is typically when people find out they underestimated costs of living back when they retired, and are falling short of actual costs. For those people who misgauged what the costs of living were going to be, income paid to them could be the difference between poverty and comfortable living.

If you should die at any time, your spouse or your children would receive your block of money tax-free. This would be less any claims paid or income received, but any remainder value would go to them without tax as a death benefit.

It’s the first policy where you are the primary beneficiary, whether you need care, need expense income even though you are not in a facility, or need income later on in your life because you misgauged how long you were going to live.

I provide these contracts for my clients because as an estate planner, my job is not to make you rich, but to make sure you’ll never be poor.