Can't Afford Long-Term Care Insurance? Consider These Creative Strategies

Last Updated Aug 23, 2010 9:23 AM EDT

This post continues my ongoing series on the threat of big bills for long-term care, starting with my first post Should You Buy Long-Term Care Insurance? Last Monday I provided tips for buying long-term care insurance, and I made the point that some people may not find it necessary to cover most or all of their long-term care risks with insurance. Here I'll explore this concept further.

A long-term care insurance policy with the most comprehensive features -- short waiting period, lifetime benefit payment period, high daily benefit, and inflation protection on the daily benefit -- also has the highest premiums. Some people may get scared off and just pass altogether on insurance, which might not be the best solution.

Here's one compromise strategy to consider: Buy "catastrophic" long-term care insurance and self-insure for the remaining costs through one or more of the alternative strategies that I've written about previously. These include building a dedicated savings account and/or keeping home equity in reserve in case you ever need it to pay for long-term care expenses.

A "catastrophic" long-term care policy would substantially reduce the premiums you pay compared to a comprehensive policy, yet still would protect you against the most ruinous situation -- a multi-year stay at an expensive facility. Such a policy would have a long waiting period -- up to a year -- but would then pay benefits for your lifetime. I talked with one long-term care expert who estimated that a policy with a one year waiting period might have premiums that are 25 percent lower than a policy with a 90 day waiting period, and 40 percent lower than a policy with a 30 day waiting period.

Another alternative for married couples is to consider purchasing coverage for just the wife. Often, the husband is the first to need long-term care, since husbands are typically older than their wives. In this case, the wife usually becomes the primary caregiver. Eventually the husband passes away, leaving his wife exhausted -- both physically and financially -- with the distinct possibility that nobody is left to care for her, should she need long-term care. For these reasons, most residents of nursing homes or assisted living facilities are women. According to one website, 70 percent of nursing home residents are women; my own observations of the proportion of women at assisted living facilities is higher -- roughly nine out of 10. Buying insurance for the wife can protect them against becoming vulnerable widows.

If you buy insurance just for the wife, however, you need to understand and accept the potential burden this can place on the wife, and have strategies in place in case the husband needs long-term care. Also, there's the risk that the wife passes away first, leaving the husband vulnerable. Another way to address this issue is to buy a joint insurance policy that provides a pool of benefits that can be paid either for the husband or the wife, or both. Such a policy has the potential to pay benefits when the need is greatest.

The above ideas have one potential downfall that is vitally important: If you haven't planned for the long-term care expenses that aren't covered by insurance, you might have difficulty paying out-of-pocket for expenses that can be significant. Don't forget to combine the above ideas regarding insurance with the other strategies -- dedicated savings accounts or home equity. And make sure those resources are adequate to fill in for costs that aren't covered by insurance.

These ideas have been tested -- unintentionally -- by older relatives of mine who had bought long-term care insurance policies and still incurred substantial out-of-pocket expenses. While this outcome wasn't planned and it wasn't ideal, they patched together the insurance benefits with their other resources, and they made it work. Actually, I should say that their children made it work -- which illustrates the point that most people reach a point in their lives where they need a younger advocate to look out for them.

While writing this series, I've received valuable comments from insurance agents and other experts on long-term care. I'm sure the ideas in this post will generate more comments or additional creative ideas to consider. Given the complexity and importance of addressing the threat of potentially ruinous long-term care expenses, all ideas are welcome!

More on CBS MoneyWatch
Should You Buy Long-Term Care Insurance?
Tips for Buying Long-Term Care Insurance
Strategies for Addressing the Long-Term Care Threat
Long-Term Care Insurance vs. Other Strategies: Pros and Cons
Long-Term Care: What Are the Real Risks?
Long-Term Care Services: Why It Pays to Shop
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    View all articles by Steve Vernon on CBS MoneyWatch»
    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.

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