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The insurance you're most likely to need

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Paying for insurance is something we do to transfer risk from ourselves to an insurance company. The insurance company collects premiums from many and expects to pay claims to a few and make a profit in the process. We pay to have the peace of mind that comes from transferring the risk of loss to the insurance company.

We have homeowners insurance in case of a fire. The odds of a fire in your home are about 1 in 1,200.

We have auto insurance in case of an accident. The risk of a major loss due to an auto accident is about 1 in 240.

The odds of needing some form of long-term care if we live to age 75 or older, which more and more of us are, is 3 in 5, or about a 60 percent chance. The statistics are clear: long-term care insurance planning is an important part of estate planning and should be considered in every family's financial plan.

Many of those who have long-term care insurance have first-hand experience with parents who needed it and didn't have it or, in some cases had it and saw the benefits. Not so many years ago, people retired at 65 and died in six or seven years. The 100-plus age group is now the largest growing age group in the United States. The healthier you are, the longer you live, the greater the chances of your needing some form of assisted living that will be paid for out of pocket, by the state, or by long-term care insurance. According to The California Partnership for Long Term Care, the approximate average cost for long-term care in San Diego in 2005 was about $220 a day or $80,300 a year. The rate of inflation for long-term care has been about 5.9 percent annually.

Long-term care insurance could be renamed "stay out of nursing home insurance." Many people don't realize that it can be more expensive to stay at home with some assistance than moving into an assisted living facility. Medicare does not pay for long-term care, custodial care or home health care. Medi-Cal is a welfare program for those with little or no assets. It does not pay for custodial care or home health care. It pays for care in nursing homes that accept Medi-Cal. The funds received by nursing homes from Medi-Cal are barely enough to pay for the care in many cases.

Medi-Cal reimbursement continues to be cut from the state budget while it remains among the largest and fastest growing parts of the state budget. The economic result: Many nursing homes that accept Medi-Cal are reducing the number of beds for Medi-Cal patients. Many of the best facilities do not accept Medi-Cal because reimbursement does not cover their overhead for the care they provide. Because of this, facilities in premium locations with a high standard of care find Medi-Cal patients are subsidized by non-Medi-Cal patients. Faced with the choice of lowering the overall standard of care and accepting Medi-Cal patients or having a higher standard of care and not accepting Medi-Cal patients, many opt for the latter and would rather have open beds than take on Medi-Cal patients whose reimbursement doesn't cover their costs.

In California, we have the Partnership for Long Term Care. Companies that are part of the California Partnership for Long Term Care are required to provide additional benefits for policy holders at no additional cost. The three most important advantages of buying a California partnership policy are: asset protection, the services of an advocate not associated with an insurance company or the state, and rate stability. As long as you live in the state of California, if you were to buy a long-term care policy and use up all of its benefits, you would have asset protection from Medi-Cal recovering costs. For every dollar paid of long-term care benefit, you receive one dollar of asset protection.

Inflating an annual 2005 benefit of $80,300 by 5 percent for 30 years amounts to $358,759 a year. For three years of care you would exclude nearly $1.08 million from Medi-Cal cost recovery should you run out of benefits and have to pay out of pocket.

Having a professional advocate to ensure you are getting the most for your money is perhaps the most valuable aspect of a California Partnership policy. At a time when you are not capable of looking out for yourself and your children are juggling their lives while helping you, this is extraordinarily valuable. The price stability comes from all the California Long Term Care policies being pooled together so that any requests for future rate increases are based on the entire pool of partnership policies as well as having rate caps in place.

The asset protection from a California Partnership policy is worth close consideration. Imagine two families with the same net worth of $1 million. Both families bought policies from the same company with the same cost and same benefits. One bought California partnership policies and the other did not. Thirty years later, one person in each family utilized the insurance after their spouses passed away. The cost of care for each person exceeded the benefits by two years. The family with the California partnership policy inherited the entire $1 million dollars because more than $1 million in long-term care benefits were paid, and thus protected from Medi-Cal recovery. The other family inherited about $282,482 because Medi-Cal recovered two years cost of $717,518. The California Partnership policy had asset protection and the non-partnership policy did not. The premiums were exactly the same.

With increasing longevity and a 60 percent chance of needed some form of assisted living if you live past age 75, having long-term care insurance makes sense. Buying a California Partnership for Long Term Care policy is generally the best option for most people. These policies need to be acquired from licensed insurance agents who have met the additional continuing education requirements by the state of California to sell California Partnership Policies.

You wouldn't be without fire insurance even though there is only a 1 in 1,200 chance of your home burning down, or auto insurance when there is only a 1 in 240 chance of being in a major accident. Long-term care insurance for many families is an integral aspect of estate planning and should be included in most family's financial plans.

Erwin, ChFC, is president of Erwin Financial in Carmel Valley.

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