The Financial and Emotional Reasons for Long-term Care Insurance
By Steve Davis, CERTIFIED FINANCIAL PLANNER™
Americans are living longer than ever before and that means that more people are finding it necessary to get help with normal daily tasks like bathing or dressing. Often it is the adult daughters of aging parents who find themselves needing to provide this type of assistance for mom or dad. At other times, a home health aide or visiting nurse can be hired to offer help in the home a few times a week. Frequently, full-time care becomes necessary and this can be performed either in the home or in a full-time nursing facility.
Whether long-term health care is provided by family members, a visiting nurse or a full-time nursing home, there are often substantial costs involved. Family care-givers can find themselves needing to take vacation and sick days off from work. Additionally, they often incur emotional costs when trying to balance work, caring for their aging parents, and taking care of their own immediate family. When professional care is hired, the financial costs can quickly deplete one’s life savings. Even having a home health aide who visits a few times a week can cost more than $40,000 per year. Full-time nursing care is the most expensive and the average cost for a semi-private room in a Massachusetts nursing home averages $310 a day or $113,000 per year! That means that half of the nursing homes in our state are even more expensive than that. Sort of makes staying at the Ritz a bargain, don’t you think?
Unfortunately, many people mistakenly think that health insurance or Medicare will pay for long-term care should they ever need it. But health insurance really only pays for doctor and hospital bills. And Medicare only pays long-term care for a short period of time after a hospital stay. So, what’s a family to do?
Consult an Elder Care Attorney: In addition to making sure that your wills, health-care proxies and power of attorney documents are accurate and up-to-date, an elder care attorney can help you determine if you can qualify for Medicaid coverage. Each state has its own name for the Medicaid program; in Massachusetts it’s knows as “Mass Health”. The program is designed as a safety net for those with low-income and limited assets. It will generally pay for certain health services, long term care services such as home health care or nursing home care, but there are limitations on the amount of assets a person may own and the amount of income a person can receive each month before they become eligible.
Self Fund your Long-term care? If you can afford to pay for care without significantly impacting your assets, you may not need long-term care insurance. But don’t make the mistake of choosing to self-insure merely because you hope (fingers crossed) that you’ll never need care. Health and Human Services statistics show that 70 percent of Americans over age 65 require some type of long-term health care — and most people sure don’t want to pay out six figures each year in cash to pay for it. Still, the question must be asked: Does it make sense to self-fund when private long-term care insurance is available? If you would like to find out based on your specific circumstances, visit the calculator on my website: http://www.talkwithdavis.com/Long-Term-Care-Self-Insurance.c698.htm
Purchase Long-Term Care Insurance? If you decide to go ahead and buy long-term care insurance, here are some things to keep in mind.
Make sure you get a broker who is independent and not tied to any one particular insurance company. Costs and features can vary widely from one company to another and just like car insurance, picking the wrong company can cost you thousands. You also want to make sure your broker has expertise in long-term care and knows about the new type of asset-based coverage recently introduced to the marketplace.
Newer Asset-Based insurance: In recent years, the insurance industry has offered a newer type of long-term care policy that is funded with a onetime transfer of assets, typically from low-yielding liquid assets like a savings account. These newer policies offer three benefits. First, the insurer promises to pay benefits if you get sick and qualify. Second, the insurer promises to refund your premiums if you die without having received long-term care benefits (this is in the form of a tax-free death benefit paid to a named beneficiary). Thirdly, the insurer will allow you to change your mind and surrender the policy at any time for a full refund of premiums paid.
Traditional premium-based insurance: Traditional policies don’t need to be funded all at once. They require ongoing annual premiums which can be subject to rate increases. A “10-pay” policy, which requires a much larger annual outlay of cash, has become popular because it’s fully paid in ten years and limits the exposure to rate increases to the remaining years of the ten year commitment.
No matter what type of coverage you select, pay attention to the following features:
Daily Benefit: While the average cost of a nursing home is more than $300 per day, you may find that a policy offering this amount of daily benefit is more than you can afford. If that’s the case, don’t be afraid to purchase only what you can fit in your budget. Some coverage is better than no coverage.
Benefit Period: An agent may prompt you to purchase coverage that offers a life-time benefit. Keep in mind that the average nursing home stay is 2.5 years. For most people, a three to six year benefit period should be sufficient.
Elimination Period: This is insurance-speak for deductible. The shorter the elimination period, the more expensive the insurance. Typically a 90-day elimination period is appropriate and will often coordinate with the end of Medicare benefits following an acute medical event.
Inflation Rider: Don’t skimp here, especially if you’re relatively young. The cost of services increases each year so it’s important to have your benefits grow too. Look for a rider that offers 3 to 5 percent inflation protection.
Ask Around: Individuals who have overseen the long-term care of a loved one understand the financial and emotional impact in ways that most Americans do not. According to a Lincoln Financial “Life Stages” survey, sixty percent of respondents said the experience opened their eyes to the “true cost” of care. Consider talking with your family about this subject when you’re together around the holidays.
About this column: Steve Davis is a local CERTIFIED FINANCIAL PLANNER™ who has been helping clients for more than twenty years. He serves clients in Mansfield, Foxboro, Easton and other local communities. You can find out more about Steve and his company, Davis Financial at www.talkwithdavis.com
Securities offered through LPL Financial Member FINRA/SIPC