Chapter 7

Step 4: Insure Your Future Long-Term Insurance, Modified Endowment Contracts and More

You want to be sure that your money doesn't run out before you do. – Matt Rettick

Insurance is about protection against risk. You insure your home against the risk of fire, theft, and natural disasters; your car against the risk of accident; your health against the financial risk of high out-of-pocket medical expenditures via health insurance. So why not insure yourself against the risk that you'll need some kind of long-term care of help in the future?

After all, as we've talked about, the odds are against you. Still not convinced that you could and likely will need some long-term care at some point? Let's put it another way:
The odds that you'll ever use your homeowner's insurance are one in 80 ("LTC Insurance is Still a Tough Sell Despite Many New Features," National Underwriters, May 10, 1999).

The odds are one in 40 that you'll use your auto-mobile insurance (also National Underwriters).

If you're post-retirement age, the odds that you'll need some kind of long-term care are about one in three (Peter Kemper, Harriet Komisar, and Lisa Alexcih, "Long-Term Care over an Uncertain Future: What can Current Retirees Expect?" Inquiry 2006). Again, it just makes sense to insure your future. Remember too that of everyone who is 65 today, 35 percent will spend more than five years in a nursing home! (Kemper, Komisar, and Alexcih). Do you have the tens of thousands of hundreds of thousands of dollars to foot that bill out of pocket? Or have you planned how you'll qualify for Medicaid without hurting your loved ones in the present and future? Again, for most Americans, the answer to those questions is no.

The biggest shortcoming of long-term care in general is that people just don't understand how fast its cost is growing, says Phyllis Shelton, a nationally recognized long-term –care insurance authority and president of Nashville, TN – based LTC Consultants.

Factoring in inflation, the cost of your future care, if it's required, is mind-boggling. Consider a few numbers from Shelton, author of Long-Term Care: Your Financial Planning Guide (LTCi Publishing, 2007): The average annual cost of care today is $75,000 – and that's not ‘round-the-clock care. It's eight to 10 hours of daily home care or a private room in a facility. With the accepted inflation rate for care costs at about 6 percent, that means the cost of care will triple in 20 years. If you're 50 years old today and project that growth rate out 30 years, you'll have to pay about $32,000 a month, or $310,000 a year!