Long-Term Care Insurance: What People of All Ages Need to Know

Long-Term Care Insurance Protects You and Your Assets

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”]

It’s All About Managing Risk

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”]

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

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.

Some Critical Do’s and Don’t’s

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

• 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 a complicated area, and there are many granular details that distinguish products from each other.
• Discuss your Decision with Family Members: Both Asnes and Carolyn Howard stress that you should also discuss your decision and motivations with family members. Take a detailed, proactive—and realistic—financial inventory, and ask yourself why you’re buying. To protect assets for heirs? To make sure that you are not a burden on your children and other loved ones?  This process should go a long way to helping you decide what, if any LTC product to buy.
• 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 that you will be rejected for coverage because of a preexisting medical condition. By and large, most experts suggest that it’s prudent to buy in your mid-fifties, and at the very least by the time you turn 60.

[Editor’s Note: For more on this, please see “Advice for Recent Widows: Six Steps You Can Take for Peace of Mind”]

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

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

• 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, as a rule of thumb, the average amount of time spent in a nursing home is about three years.
• 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.”
• 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.
• Remember to take a careful look at your policy’s “elimination period.” In the LTC world, “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 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.