Retirement for many people is defined as the time when they are able to live off of the income from their assets combined with Social Security and perhaps a pension. But anything from a car accident to a stay in long term care can quickly deplete retirement assets and jeopardize the fruits of a lifetime’s work. This can be particularly devastating for a married couple when one of the spouses falls ill and the assets of both must be devoted to the care of the other. Medicaid law permits the Community Spouse (the spouse not in long-term care) to retain a maximum of $104,400.00 in non-exempt assets, but without planning, in many cases that amount can be lower.

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This article provides some preliminary answers to an important question for today’s retirees and elderly: Is long term care insurance a good idea?

In general, I advise clients to get long term care insurance. The effects of being unprepared for this financial tsunami are too overwhelming to do otherwise. But be careful and be informed.

Among your first questions should be the extent of the coverage and the anticipated premium schedule. It is not uncommon to see nursing home care costs increase 10% or more in a single year. It is therefore important to understand how much coverage is needed and how much adequate coverage will cost.

Once you have that information, consider this: a properly drafted and funded asset protection plan will give you all of the benefits of your assets, but fully protect them from the cost of long term care after five years. When you look at the premiums, the escalation of long term care costs, and the uncertainty of the future, an asset protection estate plan combined with 5 years of long term care insurance makes the most sense for many people.

States have begun to encourage all citizens to obtain long term care insurance as part of the Deficit Reduction Act. No one likes paying premiums on insurance, but for those of modest means, the premiums are especially burdensome and the benefits, considering that Medicaid is available when the assets run out, negligible. According to this article from the Wall Street Journal, “States Draw Fire for Pitching Citizens on Long Term Care Insurance,” the broad encouragement to obtain long term care insurance is generating profits for the insurance industry at the expense of people who cannot afford it:

The state endorsements are “the single best thing that has happened to the long-term care industry,” says Jesse Slome, executive director of the American Association of Long-Term Care Insurance. Total premiums collected for long-term care, or LTC, policies were $10 billion in 2007, up 21% from $8.2 billion in 2004.

Critics are sounding alarm bells. They argue that the financial benefits of LTC insurance for many target customers are negligible to nonexistent. Their income and assets are so low that they would quickly qualify for free care under Medicaid.

I have seen people with long term care insurance who had little to gain from having it, and I did not ask how much the premiums were–money that had been squandered. It is certainly common to see premiums of more than $3,000.00 per year.

My view is that long term care insurance can certainly be a good idea, but that decision cannot be made without the a thorough consultation with an elder law attorney. Why? Qualification for Medicaid is a specialty in of itself. The law is nuanced and subject to change. Whether one should have long term care insurance is a fact sensitive determination that should be made in the context of an overall estate plan with clearly defined goals. I can tell a client how soon they can qualify for Medicaid (which will be sooner than you think) and what value long term care insurance will have. A one hour consultation can easily save tens of thousands of dollars–by protecting assets or avoiding unnecessary insurance.

The key is to match estate planning goals with the best means available to achieve those goals. Frequently, a combination of long term care insurance along with an asset protection plan will make the most sense for people who are pre-planning their long term care needs. But if one cannot afford or cannot obtain long term care insurance, an asset protection plan is an excellent substitute and generally, a comparative bargain.