As a federal employee or annuitant, you and certain of your family members are eligible to participate in the Federal Long-Term Care Insurance Program. This is a voluntary benefit – that is, it is funded, in its entirety, by those who choose to participate. This means that once you enroll, you’ll be obligated to pay the entire cost, or premium, for your coverage for as long as you’d like to keep it. It’s term insurance, so you pay for periods of protection as you go. Stop paying the premium and the protection will end.
Long-term care insurance is a form of disability insurance. While you’re working and earning income, disability insurance could be needed to protect your income from interruption if you are unable to work and earn. Traditional disability insurance doesn’t cover certain extraordinary expenses that may result from caring for you if you become disabled. As you age, your risk of becoming disabled in some way rises. In fact, if you live long enough, you’re highly likely to need some form of long-term care before you die.
Long-term care can be broadly defined as nonmedical assistance with the activities of daily living that is provided on a regular – daily or weekly basis – and is expected to last at least 90 days. Depending on where you live and the type of care you require, a day’s worth of care can cost $250 or more. That means that you could wind up spending $90,000 per year or more on nonmedical care late in life.
I recommend the following approach to deciding whether you should own long-term care insurance. First, consider your ability to qualify for coverage. Both the Federal Long-Term Care Insurance Program and other programs in the retail market usually require medical underwriting. That means if you have certain conditions or engage in certain activities that put you at higher than average risk for needing long-term care you probably won’t be able to get insurance. If you fall in a high-risk group, you should focus on other ways to prepare for the possibility of needing and paying for care.
If you are eligible for insurance, you should next consider the cost. Long-term care insurance premiums can vary widely depending on your age, the terms of the policy and the insurer who stands behind the coverage. If you stick with large, reliable companies and good, comprehensive coverage, the cost doesn’t vary nearly as much.
The federal program fits the definition of a reliable source for quality long-term care insurance coverage. For budget purposes, if you are between the ages of 50 and 60, which is the ideal time to consider longterm care insurance, expect to pay between $1,500 and $2,500 per year, per person, for a properly configured policy. This will typically provide around $350,000 worth of protection, adjusted for inflation – and enough to reduce the probability of exhausting the policy to less than 10 percent for most people in their 50s.
If you have $350,000 in personal net worth to protect, you should consider purchasing insurance. Even a $2,500 annual premium represents less than 1 percent of the protected assets – an amount that should be easily afforded using a fraction of the return if the assets are conservatively invested.
If you don’t have adequate resources to fund a long-term care need, but have significant guaranteed income from a reliable source, such as a federal annuity, long-term care insurance might be a way to supplement this income should a need for care arise. This is usually of most benefit to someone with a financial dependent who would need to maintain his or her lifestyle in spite of your need for care.
When considering long-term care insurance, I recommend you start with the federal program – www.ltcfeds.com – and compare any other options you may be considering to it.
Keep in mind that, while premiums are designed to be level for life, under certain circumstances they may be increased.
Written by Mike Miles
For the Federal Times
Publication June 16, 2008