The biggest threat to one’s nest egg or the assets that he wishes to leave his loved ones is not necessarily a recession or tumbling stock market, but rather the debilitating march of time that could cause them to face the kind of chronic illness or disability that will necessitate long-term, often round-the-clock care.
Consider the following, somewhat unsettling, statistics. In a recent study by Genworth, a leading provider of long-term care insurance (LTC), currently some 12 million Americans need long-term care. By 2050, that number is expected to more than double to 27 million.
There are a number of factors driving this trend, notably the aging of Baby Boomers. According to a November 2013 Public Broadcasting Services report, every day between 2011 and 2029, about 10,000 Baby Boomers turned or will turn 65. The report also concluded that the number of people in the U.S. with chronic conditions will have increased by 37 % between 2000 and 2030. And many of these people, especially the elderly, need full time, hands-on care, often in an outside facility.
That can be enormously expensive. The PBS report also stated that nursing home can cost nearly $72,000 per year. Other estimates place the cost at some $10,000 a month, depending upon the area of the country and the facility itself.
Consequently, for many older adults, long-term care insurance is a viable option—and potentially game-changing safety net. It may not necessarily make sense for those at the absolute extremes ends of the income curve: those who are affluent and can thus fund their own care, or those who have sufficiently limited assets and income that may allow them to qualify for Medicaid, But for the many millions of Americans who fall somewhere in between, looking into these policies makes considerable sense.
[Editor’s Note: Please see our article, “Life After Bonds: Non-Traditional Investing Advice for Boomers”]
Another recent study by Genworth found that, despite the fact that roughly 70% of Americans reaching age 65 will one day depend on long-term care services, (according to the Department of Health and Human Services), only 11% have an LTC policy.
“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 observes. “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 emphasizes. “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.”
[Editor’s Note: For more information on this topic, please see “Life Happens, But Purchasing Disability Insurance is Intentional”]
Part of the problem, Howard and others stress, 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 chronically ill, aging, infirm or disabled—in short, those who are unable to care for themselves.. While some of these services are medical and require skilled care provided by doctors, nurses, therapists or other professionals, many others are custodial—meaning assistance with daily living tasks, such as food preparation, eating, bathing, dressing and going to the bathroom.
And, here, LTC can be invaluable. It can pay for a nurse or an aide, for example—who stops by the house for a few hours a day or a few days a week, or it can help with the cost of a senior day-care facility, an assisted-care setup or full-fledged nursing-home care. These policies also typically give you payouts if you wind up having cognitive impairment—such as dementia or Alzheimer’s disease.
Medicare, on the other hand, generally doesn’t pay for such services, unless you have had a recent inpatient hospital stay of at least three days—and even then it only covers care for 100 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 stresses.
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,” says Marion Asnes, the former editor-in-chief of Financial Planning magazine, who now is the 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
[Editor’s Note: For more on this, please see “Advice for Recent Widows: Six Steps You Can Take for Peace of Mind”]
When shopping for insurance, you, working closely with the LTC specialist you have chosen:
“At the end of the day,” Asnes advises, “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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Gay Jervey is a senior contributing writer for AIMkts. She has written for The New York Times, Money, Inc., Business Week, Fortune Small Business, Reader’s Digest, Good Housekeeping, Working Mother, More, CFO, The American Lawyer, Financial Planning Magazine, The M & A Journal, and other publications. Ms. Jervey started her career as a reporter for…
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