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Barbara Whelehan writes Boomer Bucks for Bankrate.com

Is long-term care insurance necessary?

What's the one product that consumers most love to hate? Insurance would have to rank near the top of the list.

Insurance is a necessary evil. You buy it on the off chance that something catastrophic might happen that would threaten your financial security. In effect, you're betting against yourself. But at the same time you need a measure of protection just in case the unthinkable occurs.

In my household of four, we spend nearly $12,000 annually on various types of insurance premiums -- $3,647 for auto insurance (with four drivers covered, including two young adults); $2,365 for term life insurance; $3,400 for health insurance through two employers, and about $2,242 for homeowner and flood insurance.

Imagine how much money we could amass in our retirement plans if we could just stop giving so much of it away to insurance companies. If we were to make $12,000 payments annually into a mutual fund with an annualized return of 8 percent, we could save up $173,839 in 10 years; $549,144 in 20!

Peace at a premium
It's called an opportunity cost when consumers forgo investing and instead use the money for other things such as insurance premiums. But the above calculation ignores what would happen if we had no health insurance, for example. Unexpected health problems can easily make a huge dent in a household's cash flow. Without insurance, out-of-pocket costs would soar.

For instance, a bill came in last week from an imaging center that showed the cost of an MRI at $1,400. The insurance company negotiated a reduced rate of $400, of which we must pay $80. But without any insurance, we'd be expected to pay the entire tab of $1,400.

Other types of insurance can come in handy, too. If a hurricane or tornado barrels through your area and rips your roof off, you're in trouble if you don't have proper coverage. If you crash the car without insurance and cause an injury, your assets are in jeopardy. If a working spouse dies unexpectedly, the uninsured household suddenly must scramble to make ends meet without his or her income.

So insurance offers peace of mind. But you're paying a stiff price for this peace. It's enough to keep you awake nights.

And then there's long-term care
Of all the types of insurance policies to hate most, long-term care would have to be at the very top of the list.  

With long-term care, you're paying premiums upfront, sometimes for decades, for benefits you hope and pray you'll never need. In return, you generally get only partial coverage, a particular daily or monthly dollar expenditure that likely will not cover all long-term care costs, even if you pay extra for inflation protection. Add to this the high probability that premiums will escalate over time, forcing some people to drop the coverage after years of paying into it, and long-term care insurance has all the allure of a soaked Serenity pad.

Provisions in the Deficit Reduction Act of 2005, passed in early 2006, make it more difficult to qualify for Medicaid. That program currently pays roughly half of the nation's nursing home bills. Medicaid is the fallback for the impoverished -- those with less than $2,000 in liquid assets.

Still, few Americans are buying it. According to a recent survey, two-thirds of the baby boomers questioned said they have not purchased long-term care insurance, and only 26 percent have considered doing so. The conclusion the survey draws: "This might be an area of potential weakness for boomers." Yeah, and it's also an area of potential strength for insurance companies. Note that the survey was sponsored by the Lincoln Financial Group, an insurance concern with consolidated assets of $167 billion.

The odds of needing long-term care
You don't know your chances of landing in an assisted-living facility or nursing home. You can look to your grandparents for genetic clues, but it's still a guessing game. According to one study, statistics suggest that males have a 33 percent chance of requiring nursing home care after age 65, versus 52 percent for women. We can figure this one out easily enough: The men have wives to care for them until they shed their carcasses; then the surviving widows are on their own.

Next: "I'd rather feather my own nest. ..."
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