LONG-TERM CARE INSURANCE
Questions about Long-Term Care? Call me @ (205) 578-2097
70% of people over the age of 65 will need long-term care. The average cost of assisted living in Birmingham, Alabama is $37,000 per year and $73,825 per year for a semi-private room in a nursing home. Long-term care insurance can be a valuable asset to prepare you for that event. (Data Source: Genworth Financial, Cost of LTC for AL, 2015)
Long-term care insurance helps cover chronic illness or the loss of your daily activities requiring medical care or assistance.
An article on healthcare from the Wall Street Journal in 2012 said it best, “Long-term care insurance. It’s a subject most people don’t want to think about-but many people know they need too.” There is a four letter word in that sentence, “many.” How much is, “many” you might ask? There are over 40 million Americans over the age of 65 today. By 2030, one-fifth of the population will be over 65 years old. It’s not just about demographics though. We’re living longer too. The average life expectancy for a male turning 65 today is 17.7 years and 20.3 for a female. We’re an aging population, to say the least.
There is a 50% chance that either you or your spouse will require long-term care at some point in your lives. What is your plan for chronic illness?
Question: What is the number one reason for bankruptcy in retirement?
Answer: Healthcare spending.
Does that sound like a scare tactic? You bet it does. You saved and worked over the course of your life to prepare for retirement only to see a chronic illness eat away at your nest egg. Here’s the deal. If your retirement planning isn’t covering the cost of healthcare in retirement, it’s time to act. There is a Proverb that states, “where there is no vision, the people perish.” (Proverbs 29:18) To say that another way, you have to have a plan and simply hoping for the best isn’t a plan. Here are some hardcore statistics according to that same Wall Street Journal article:
- 70% of people over the age of 65 will need long-term care.
- The average cost of care per day is $150 per day or $4,500 per month.
- The average length of claim is 33 months.
That works out to $150,000 of out of pocket spending for chronic illness, per person. That need increases exponentially with Alzheimer’s patients as patients can be in great health while needing round the clock care. What’s your plan?
What is Long-term Care?
Here’s a good Google definition: Long-term care refers to a continuum of medical and social services designed to support the needs of people living with chronic health problems that affect their ability to perform everyday activities. Long-term care services include traditional medical services, social services, and housing.
Health professionals and insurance companies for that matter, view long-term care and chronic illness in the context of losing two or more of your activities of daily living or your ADLs for short. Those ADLs are:
- Being able to move from one place to another
- personal hygiene
- using the restroom on your own.
Long-term care refers to a continuum of medical and social services designed to support the needs of people living with chronic health problems that affect their ability to perform everyday activities.
A person that loses any two or more of those essential functions from an illness or through the natural process of aging is considered to be chronically ill. A chronically ill person will receive care typically from one of three options:
- Some one in the family, i.e., a spouse or traditionally the oldest female.
- If family care isn’t a good option and the chronic illness isn’t too severe then a health-care professional can administer care within your own home. Home care can include anything from medical treatments to something as simple as general cleaning and cooking.
- If a person requires more care that can be given by either family or a healthcare professional/nurse, then some type of assisted living or nursing home is your best option.
Option 1 in the above scenario isn’t expensive to you but potentially damaging to your children as many times they have to rearrange their lives, quit a job or move closer to provide care. Options 2 and 3 are where you begin to incur the heavy out of pocket costs for care.
Options For Covering Long-term Care Expenses
There are generally four ways to plan for chronic illness costs:
- Self-insure. If you’re relatively wealthy you might choose to pay costs out of pocket. How much should you save to cover costs? I frequently recommend that seniors have at least the average cost (remember the $150,000 in savings from above from $4,500/month over 33 months) if they are choosing to self-insure. Don’t panic yet if you don’t have $150,000 sitting in the bank because if you’re preparing early, $75,000 invested with a 6% rate of return at the age of 55 will get you right at $150,000 by the time you’re 67 (not inflation adjusted).
- The Hybrid Life insurance or annuity based long-term care. One of the biggest trends in the long-term care industry is life insurance or annuity based long-term care coverage. Many insurance companies are adding riders to permanent policies with the ability to cover chronic illness. Based on your age, you can take a portion of the death benefit and turn those into chronic illness dollars. It’s not necessarily any cheaper than the traditional, stand-alone long-term care policy. But there are advantages in combining the two for financial planning purposes as you now have the value of a tax-free death benefit through the life insurance. Annuity based coverage plays an important role for those who aren’t generally healthy enough for the stand-alone policy as annuities are easier to underwrite. The annuities can add income in retirement and give you the option to use those assets for chronic illness coverage. This can be an attractive option for those who don’t want to “lose” all the money paid in premiums in the event you never needed the policy.
- The traditional, long-term care insurance policy. If you do not have enough assets for an annuity to make sense, and you’re still relatively healthy, long-term care insurance can be a great option for you. The thing I like about the traditional policy is that it’s built to suit your need or fit your budget. If the premium is more than you want to pay, the benefit, benefit period (length of coverage), elimination period and inflation protection can all be adjusted to fit your need. So for many, the traditional long-term care insurance policy is still the best fit for planning.
- Medicaid. Medicaid was created to cover the cost chronic illness for those who could not afford it. If you have less than $150,000-$200,000 in assets between your home and savings, Medicaid might be a good option for you. You need to mindful that you don’t have as much say in how you’re cared for as it is government controlled. There is also a qualification process that many times can be hard to qualify for. If you’re seriously considering going in the Medicaid direction, an elder care attorney is going to be a must!
Best Practices For Preparing For Chronic Illness:
- Plan early. The longer you wait, the more limited your options.
- If you decide to go the traditional, long-term care insurance policy route, selecting the right carrier for you will be the most important part of the process. There has been an enormous amount of upheaval in the long-term care insurance market. Due to increased and unforeseen cost, many carriers have made the decision to get out of the business altogether. Many more insurance companies are taking huge losses in their LTC book of business which will lead to even more upheaval. On top of the upheaval, the carriers that did not properly price their LTC products years ago are having to frequently come back to each state and ask for rate increases. So picking the cheapest carrier with a bad history of rate increases can end up costing you much more over the life of the policy. Having said that, there are still excellent carriers to choose from. An independent
agentthat represents the best carriers in the market can find the best coverage and carrier for you.
- Think long-term in your planning rather than focusing on a premium today. Depending on your age or your health, premiums can be expensive. But consider the cost of needing an in-home nurse or an assisted living facility and that expensive premium may well protect your assets as well as those you love.
- Between the ages of 50-65 is generally the recommended age to start shopping for LTC. But if you have a family history of Alzheimer’s or another debilitating disease, it may be in your best interest to start even earlier.
- For many, waiting until age 60 may be too late. Remember that your premiums are directly related to your health which for many isn’t a reality in their sixties.