Long-Term Care Insurance: What You and Your Family Should Know

Long-Term Care Insurance Protects You and Your Assets

Chronic illness requiring round-the-clock care is the greatest threat to assets people wish to leave their loved ones.

“The number of adults over 60 requiring long-term care will more than triple in the Americas over the next three decades, from around 8 million people [in 2019] to between 27 million and 30 million by 2050,” according to the Pan American Health Organization, an international agency specializing in health for the Americas.

There are two major factors driving this trend:

1. Aging of Baby Boomers.  Every day between 2011 and 2029, about 10,000 Baby Boomers will turn 65, according to Pew Research Center.
2. Chronic conditions. The number of people in the U.S. with chronic conditions will have increased by 37 % between 2000 and 2030, according to the Robert Wood Johnson Foundation.

Many of these elderly people need full-time, hands-on care, often in an outside facility, which is expensive.

Nursing homes can cost between $60,000 and $120,000 per year, according to Caring.com and a survey conducted by Genworth, a leading provider of long-term care insurance (LTC).

Long-term care (LTC) insurance is a viable and game-changing option for many older adults. It may not be the best solution for extreme ends of the income curve: people capable of funding their own care, or those who qualify for Medicaid.

But for millions of Americans who fall somewhere in the middle, it makes sense to look into these policies.

It’s All About Managing Risk

About 70% of Americans reaching age 65 will need long-term care services, but only 11% have a policy, according to the Department of Health and Human Services.

“It’s the same old story over and over again,” notes financial planner Carolyn Howard, the founder of Sea Cure Advisors and an expert in the field. “Nobody wants to acknowledge the unpleasant fact that they could go through all their savings and other assets just because they need long-term care.”

“Most of us just don’t even want to think about getting old and infirm and needing 24/7 care, particularly in a nursing home,” Howard said. “And if we do think about it, we put off making a decision or balk at spending the money for a long-term care policy.”

“But, ultimately, it’s about whether or not people want to assume all the risk or share it,” Howard emphasized. “So for those that are really squeamish about putting a lot of money into long-term care, even though technically they can afford it, I always remind them that they don’t have any trouble insuring their car or their home, so why don’t they want to insure themselves against the risk of becoming disabled in some way, which is pretty high.”

“I remind them that by doing nothing, they are rolling the dice,” Howard said. “And, interestingly, some of those people who roll the dice on this, don’t roll it in any other regard.”

Parsing Health Care Programs—Truly A Case Of Apples And Oranges

Part of the problem, Howard and others stressed, is that many people mistakenly assume that traditional health insurance, the Affordable Care Act and/or Medicare, the federal healthcare program for older Americans, will cover long-term care.  Unfortunately, that is far from the case.

First, let’s clarify exactly what long-term care is. LTC plans encompass services for those who are unable to care for themselves for reasons including, but not limited to:

• Chronic illness
• Aging
• Disability

LTC includes medical services from doctors, nurses, therapists, or other professionals. Other services include help with daily tasks: food preparation, eating, bathing, dressing and going to the bathroom.

LTC can be invaluable. It can pay for a nurse or an aide who stops by the house for a few hours a day or a few days a week. It can help with the cost of a senior day-care facility, an assisted-care setup or care at a nursing home. These policies usually give you payouts if someone suffers from cognitive impairment—such as dementia or Alzheimer’s disease.

Medicare generally doesn’t pay for such services. It may cover 100 days if you’ve recently stayed in the hospital at least three days. “So if you don’t have long-term care insurance, you’ll need to pay for such costs out of pocket, unless you can qualify for Medicaid,” Howard said.

Some Critical Do’s and Don’ts

First, consider your own tolerance for risk. And remember that if you must enter a nursing home at some point, the total cost of all your premium payments combined will almost certainly be less than the cost of a single year in the facility—no matter how many years you’ve been paying premiums.

“When people talk about the pros and cons of long-term care insurance, one big con is that it is expensive,” said Marion Asnes, the former editor-in-chief of Financial Planning magazine and the current president of Idea Refinery LLC, a consultancy for independent financial advisors. “And if you are lucky, stay healthy and don’t need the coverage, you will be paying for something that you don’t end up using. So that’s a negative, as well. But, at the end of the day, you have to remember that it could be a question of ‘better safe than sorry.’”

Tips on Investigating LTC Insurance

1. Work with a Financial Planner or Insurance Broker: Once you decide to look into LTC, it’s important to work with either a financial planner or insurance broker who specializes in the field. Remember, this can be complicated and there are many granular details that distinguish products from each other.
2. Discuss your Decision with Family Members: Asnes and Howard said you should discuss your decision and motivations with family members. Take a detailed, proactive—and realistic—financial inventory, and ask yourself why you’re buying. Is it to protect assets for heirs? Is it to make sure that you are not a burden on your children and other loved ones?
3. Timing Can Be Everything: Keep in mind that timing can be everything. With each passing year, LTC is becoming significantly more expensive, more complex and harder to obtain. The premiums escalate as you age. What’s more, the longer you wait, the greater the chance of being rejected for coverage because of a pre-existing medical condition. By and large, most experts suggest that it’s prudent to buy LTC in your mid-fifties, and 60 at the very least.

Key Things To Consider Once You’ve Decided To Purchase LTC

When shopping for insurance, start working closely with the LTC specialist you have chosen:

1. Start by figuring out the current daily cost of nursing-home care. Next, you need to decide how many years of that coverage you would like. The bigger the number, the more expensive your policy. Most experts suggest that the average amount of time spent in a nursing home is about three years.
2. Buy a policy you can hold long-term. The National Association of Insurance Commissioners (NAIC) suggests that you spend no more than 7% of your income on premiums. “Don’t forget, you have to keep paying the premiums after you retire, so don’t get in over your head by buying a policy that you ultimately may not be able to keep up with,” Asnes continues. “It makes no sense to buy a policy today that you will have to abandon in a few years because it is too expensive, because you will get no benefit if that happens.”
3. Make sure your policy includes an annual inflation adjustment rider. “This will increase your daily benefit coverage by a set amount each year,” Howard said.
4. Remember to take a careful look at your policy’s ‘elimination period.’ In the LTC world, the ‘elimination period’ is comparable to the health insurance deductible. “This is the amount of time you will have to pay for the care out-of-pocket before your long-term care coverage kicks in,” Howard explains. Typically, the minimum is 30 days. The shorter your elimination period, the more the policy will cost.

Protecting Your Estate—And Your Family

“At the end of the day,” Asnes said, “You need to look at this as a critical part of your estate planning. Because in many cases, the money is depleted taking care of one spouse, and then there is very little left for the other. So LTC can be vital in helping maintain the estate for the surviving spouse and, ideally, for the children. There’s no doubt that when chosen carefully, long-term-care insurance can make the difference between living out your life in the most comfortable way possible or becoming, in the worst-case scenario, a tough responsibility for your family, or a ward of the state.”

To learn more about LTC, visit LongtermCare.gov.

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