Another long-term care insurance option for Boomers

My grandmother died at home in her own bed, surrounded by her 13 children and dozens of grandchildren. Her daughters and daughters-in-law cared for her the last six months when she was bedridden and in pain.

For today's aging Baby Boomers, however, that scenario is unlikely to be repeated because families are a fraction of the size they were two generations ago. As gerontologist and Boomer expert Ken Dychtwald says, "There's going to be a caregiving crunch because there's no family for Boomers to rely on. They'll have to turn to professional caregivers."

And that takes money. Big money.

Here are some details on the new federal long-term care program, Class Act. The Congressional Budget Office assumed a $123 average monthly premium – that's $1,476 per year with a $50 to $60 per day payout should you qualify by being unable to perform two of the six activities of daily living (eating, bathing, dressing, toileting, transferring and maintaining continence, or cognitive impairment).

In the world of long-term care, $50 to $60 per day is a pittance. Insurer Genworth annually surveys the cost of long-term care nationwide. Its latest survey, released last month, concludes that the median cost of nursing home care in a private room is $206 a day. Even at the lowest care level, the median cost of hiring a licensed homemaker is $18 per hour or $144 for an eight-hour shift.

So even with federal help, one of the aging Boomers' biggest challenges is putting away a few bucks to provide care for themselves in case they need it.

An interesting new wrinkle on the long-term care scene is the hybrid long-term care annuity, which is available for the first time this year after the IRS said Jan. 1, 2010 that deferred annuities can be used tax free to pay for long-term care.

I wrote about the details of these for, and believe me, they are hopelessly complicated and not for everybody. But if you happen to have at least $50,000 in savings or in an unneeded universal or whole life insurance policy that you think you can set aside, probably to be inherited by your heirs, purchasing one of these long-term care annuities can give you a little peace of mind.

For $50,000 at a 3.5% compound interest rate, minus administrative fees, plus a 5% inflation rider, you'll get $265,330 worth of long-term care insurance, which is an initial $3,685 a month for six years. If you don't use it, your heirs will inherit the greater of the accumulated annuity value, if there have been no withdrawals, or the single premium paid initially less the amount of long-term care paid.

I told you it was ridiculously complex, but the bottom line is if you stay healthy, your kids get the money when you don't need it anymore. Not a bad deal -- if you can afford to be that generous.

Read Full Story