What are the chances you or your loved ones will need long term care? Someone turning age 65 today has almost a 70% chance of needing some type of long-term care services and supports in their remaining years. Women need care longer (3.7 years) than men (2.2 years) One-third of today’s 65-year-olds may never need long-term care support, but 20 percent will need it for longer than 5 years. Cognitive care—dementia and Alzheimer’s- can go well beyond the 5-year period.
What is “long term care”?
https://www.nia.nih.gov/health/what-long-term-care
By definition, long-term care is custodial care—activities of daily living, such as bathing, dressing, eating, toileting, continence and transferring. Medicare does NOT cover custodial care!
Most people want to stay in their homes if possible. Most insurance plans marketed today cover in home care, which includes assistance with the activities of daily living, but also other personal needs such as shopping, cleaning, and preparing meals.
When a person is no longer able to perform these activities safely on their own, a case manager is called in to do an assessment of their current level of care needed. Many times, this starts off slowly and progresses over time. Sometime, in the case of a stroke or accident (like a fall), the need for care is immediate.
Even with long term care insurance coverage, there may come a point where home care is too expensive because the patient needs more care, even 24/7 care. Currently, the best option is to find an assisted living facility or a smaller home care setting (usually 10 patients or less). Traditionally, the smaller home care setting has been less expensive, but recently, even those costs have escalated to around $40,000 per year!
Is long term care expensive? YES! So, how are you going to pay for it in the event you or a loved one needs care?
Option 1: Self-insure use your own assets to pay for care. This can create a huge gap in what you are living on currently and the cost of additional care, drawing down on those retirement savings rapidly. In addition, liquidating assets may create a taxable event, so the investments liquidated will not only lose the earning power but cost you more on your annual tax bill!
Option 2: Rely on the government. Hmmm…not really people’s first choice, but Medicaid in each State does have a provision for long term care, but only once you have spent down most all your assets! Some assets are exempt, a car, your home (up to a certain amount of equity), and a minimal amount of liquid assets. If you are married, there is generally an exemption for a portion of the estate for your spouse. Check with your State or Estate Planning Attorney for details in your State of residence.
Option 3: Rely on family members to take care of you. This option creates a loss of independence for the one needing the care and extreme stress on the family member providing the care. Do you really want your children helping you to the toilet, or worse, changing you?! I have seen adult children having to sacrifice their careers at a time they would be at the top of their earning capacity to take care of loved ones. This is probably the most frequent situation as family members try to decide who will take care of mom or dad, or grandma or grandpa. This can create friction and resentment in the family as well.
Option 4: Purchase a long-term plan of insurance to cover some of the costs of the care. You will not cover 100% of the cost, but it will slow down the drawdown of other assets and your current income, whatever that is (Social Security, pension, or retirement savings) will continue. The real crux of the matter comes in when spouses are relying on each other’s income and one of them needs care. Not only can this be debilitating financially, but physically and emotionally! Many times, the partner giving the care starts having health issues as well, due to the stress of providing care.
What does a long-term care plan of insurance cost?
The cost of the coverage is only as expensive as the care it will pay for…my 90-year-old Mom just went on claim this year, after paying premiums for over 20 years. Sounds like a lot, right? Well, believe me, she complained every year the premiums came due! Once her claim was approved, she received almost 50% of those premiums back in reimbursement for care in six months! She will collect more than the other 50% in the next six months, and beyond that, she will be in the plus side of reimbursement vs. premiums.
Could she have saved the premiums and invested it? Yes. But remember, she would have to liquidate assets, pay additional taxes and the long-term care insurance reimbursements are TAX FREE!
What should you look for in a long-term care policy?
Where you live, or where you expect to live out your life, is a big factor. Some areas of the Country are extremely expensive, like California or New York. Other areas are less expensive for care.
You can check this chart for averages in your location: https://www.johnhancockinsurance.com/cost-of-long-term-care-calculator.html
So how should you go about finding a good long term care plan of insurance?
First, have a trusted advisor help you navigate this. Your financial advisor or insurance broker should be certified in long term care and have a track record of working in this market.
Secondly, determine your budget. It’s no sense getting quotes if you have not determined your budget in advance. Your advisor will tell you if your numbers are realistic or not. Remember: this should be in conjunction with your other financial planning and integrate with other benefits you will be receiving.
At what age should you start a plan?
As early as possible—remember, a long-term care claim can happen well before your retirement age!
{Washington, DC: Georgetown University Press, 2003.] Most but not all persons in need of long-term care are elderly. Approximately 63% are persons aged 65 and older (6.3 million); the remaining 37% are 64 years of age and younger (3.7 million).
My husband’s niece was diagnosed with M.S. in her early 30’s. They kept her at home as long as possible, but eventually, she had to go to a nursing home (not where you want to go!). The State subsidized her stay, and all her Social Security money was assigned to the State, leaving her with a minimal amount monthly for some personal care, like haircuts. She passed away at the age of 51.
What type of plan should I look for?
Traditional long term care plans have become very expensive AND your premiums are not guaranteed, meaning they can, and will, increase over time. This makes retirement planning more complex. In addition, it is like your auto insurance—if you never need the coverage, you forfeit all the premiums.
In response to this, the insurance industry has developed another solution—sometimes called a “hybrid life/long term care” plan. This is a life insurance policy with a long-term care provision. You will draw down the life insurance benefit first, leaving a residual amount in the death benefit. Then, there is a long-term care benefit that kicks in. Be sure you have an inflation option on this as the benefit will grow over time. Another benefit to this type of plan is the premiums are guaranteed to never increase, which makes planning much easier to budget.
To wrap up, PLEASE do some planning now. Again, it’s never too early, but it can be too late. You will need to qualify for this coverage, so securing coverage while you are younger and healthier is advisable. But regardless of where you are in life, you need a plan!
0 Comments
Leave a comment