Mellody Hobson: Preparing for Long-Term Care

2. Long-term care insurance:

One option to patch some of the holes in the safety net created by Medicare and Medicaid is a private insurance policy called long-term care insurance. Basically, long-term care insurance is coverage for nursing homes, assisted living centers, home health care and many services related to elderly assistance.

Additionally, long-term care insurance can cover any individual in case they are disabled and need individual care no matter their age. In cases where an elderly patient is too sick to take care of themselves and unable to afford nursing care, the individual's assets as well as those of their spouse must be completely maxed out before the government steps in to help. It is, however, not medical insurance.

Is it a good thing to have?

A long-term care insurance policy can protect your assets and those of your spouse in the case where you would otherwise be unable to afford care. According to bankrate.com, the average cost of long-term care insurance can range from $400 a year (for individuals in their 30s) to $1,000 for those in their 50s and 60s.

If you are young and healthy, long-term care insurance may not be the right solution for your eventual care costs. Instead, a young person would do much better investing the amount of the annual premium in the stock market and self-funding their care.

While there is no single rule of thumb to follow regarding coverage, take into account your family medical history, your net worth, age and marital status to determine if a long-term care policy is the right choice for your care concerns. United Seniors Health Cooperative recommends seniors have at least $75,000 in assets and an annual income of $30,000 a year before they purchase long-term care insurance.

What should you consider when choosing which long-term care insurance plan is best?

It is important to talk to an insurance agent who has a wide variety of long-term care options as this type of insurance is not a one-size-fits-all package. Key factors such as the dollar-per-day benefit, duration of coverage and whether or not the policy is inflation protected to ensure your daily allowance keeps pace with the dollar's real value need be taken into consideration.

Is this the complete coverage answer?

The typical long-term care insurance policy provides coverage of $50 to $200 a day for care, whereas a typical nursing home stay can range anywhere from $100 a day to $400 a day. As such, owning a long-term care policy does not mean you can stop saving for retirement. A quick run of the math reveals a gap between what you have and what you need. Additionally, many policies have a deductible which often is correlated to days and not dollars and may require you to cover the cost of a stay of 120 days or less out of your own pocket. Therefore, it is critical to understand the benefits and costs of a policy completely before purchasing one.