6 Ways Paying for Long-Term Care Coverage, and how to get the right Long-Term Care Insurance for you and your family.
The topic of Long Term Care coverage is complicated and a not particularly fun one to think about. But guess what? Ignoring it will not make it go away, and putting it off will only cost you more in the long run.
An estimated 70% of Americans will need some Long Term Care during their lifetimes. Keep reading as Financial Planner LA shares how you can pay for long-term care when you need it (hopefully well into the future).
By David Rae Certified Financial Planner™, Accredited Investment Fiduciary™
“A 65-year-old male with a long-term care coverage insurance policy has a 32% chance of letting the coverage lapse before he dies, with his female counterpart having a 38% chance of doing the same.”
Time Magazine, October 6, 2015
Last month, I had three meetings in a row with new clients caring for parents currently in nursing homes or other long-term care facilities. All of their parents are healthy enough to live well into the future, yet not healthy enough to care for themselves independently. This is never a fun topic, I can tell you, and all three were stressed and confused by the various Long Term Care Coverage (LTC) choices they have had to make on behalf of their folks – But I can also report that this situation has had an upside for my clients; it’s been a wake-up call regarding their futures. Still young and healthy enough to qualify, they’ve vowed to make arrangements for their LTC while it is still economically viable to do so and on their own terms.
With 10,000 or so baby boomers retiring every day, I’m sure a few of you have already purchased some form of long-term care coverage. I’m guessing that probably a bigger group has at least thought about it. Here are a few of the FAQs I often hear on the topic.
What exactly is Long Term Care?
It may include home health care, an assisted living facility, or the dreaded nursing home.
Does Medicare typically cover Long-term Care costs?
No. For the most part, Medicare will not cover your long-term care expenses. In many cases, you need to be indigent (have run out of money) for expenses to be covered. Not a great option, especially for married couples.
Should You Buy Long-Term Care Coverage?
Yes, you should have some long-term care coverage as part of your retirement income plan. Two exceptions to this:
1) if you’re dead broke and won’t be able to keep up with premiums
-or-
2) if you’re Bill Gates and can pay out-of-pocket for any medical care he wants. The question isn’t whether you need LTC insurance (you do) but how much you need and what kind of coverage to choose.
Can you afford to keep the coverage, or more to the point, can you afford not to keep Long Term Care coverage?
The options are complicated, and Long-term care insurance policies often seem expensive, and the premiums seem to go up every year by leaps and bounds. That said, researchers at Georgetown University estimate that 70% of individuals 65 and older will need some LTC during their lifetimes.
Do people shoot themselves in the foot when making important LTC insurance decisions?
Boy, do they ever! Here are the six major LTC faux pas I see over and over.
LTC Faux Pas #1: Doing nothing or waiting too long to act (getting long-term care Insurance).
Realistically, if you are healthy, your early 50s is the best time to line up the LTC coverage that you may need. If you already have health issues or a family history of health issues, you’ll need to start even earlier and can expect to pay more for your premiums.
Premiums generally increase by 3 to 4 % each year you delay applying for a policy. You may face further premium increases if your health deteriorates. Or you may not be able to get coverage no matter how much you are willing to spend. But it never hurts to ask; I’ve helped people, even in their 80s, get LTC coverage.
LTC Faux Pas #2: Choosing your Long-term Care policy based on price, not value.
All Long-term Care policies are not created equal. The value you get for your money can vary widely by policy. While the cost is essential, if something is priced too cheaply, you may face unaffordable premium increases later on down the line. I won’t name the company here (there have been quite a few who have done this), but many people have faced annual premium increases in the range of 40% or more on several occasions. This is one of the reasons I often look to other alternatives for clients looking for traditional LTC coverage. Other options may include LTC riders on life insurance or hybrid policies (more on this later).
I had a client bring me a letter from a Long Term Care Insurance provider stating that her premium would be more than doubling over the next 3 years. To make this more painful, she is already retired. Has pre-existing health condition. Not to mention, she has had this policy for nearly 30 years.
LTC Faux Pas #3: Not taking advantage of married couples’ options.
I rarely see new clients come in with a joint LTC policy. However, many companies offer spousal discounts for policies purchased by married couples. These can mean as much as 30% off the premiums per year. Couples policies can also be an inexpensive way to increase coverage or decrease premiums and increase the odds of getting some benefit from the policy.
Consider a couple that purchases a joint policy for two years of coverage each. Say the wife ends up needing care for three years. With a joint LTC policy, she uses her two years and one of her husband’s years. This leaves the husband with only a year of coverage, but they paid less in premiums and decreased the odds of further out-of-pocket expenses. Most importantly, they used more of the benefits of the policy.
Most LTC policies use or lose it; if you don’t need a nursing home and you pass away, the policy ends with no payout to an heir. With joint LTC coverage, the husband may end up paying out-of-pocket for additional care if he stays longer than one year in this scenario, even then, they would have had to pay out of pocket for the wife’s care anyway.
LTC Faux Pas #4: Not factoring in inflation into long-term care Costs.
What may sound like a lot of coverage now may not be adequate 20 or 30 years after inflation. With the big wave of boomers retiring, there will be further upward pressure on LTC costs, which may far exceed normal estimates of future inflation. Inflation riders on LTC policies can greatly increase your coverage, but these riders can appear quite expensive and often get skipped.
LTC Faux Pas #5: I don’t know exactly what you’re getting with your policy.
These aren’t one-size-fits-all policies. Getting coverage is not a check-the-box type of thing. Make sure you compare apples to apples when looking at policies and that they provide appropriate coverage for your situation and overall financial plan. Other fine print type of things may limit things like home health care. If, like many, you want to stay in your home as long as possible, this would be a big issue.
LTC Faux Pas #6: Ignoring Hybrid Policies that may save you money or get you more coverage.
So-called Hybrid Polices have been growing in popularity over the past few years. They often package Long-term Care coverage with life insurance or sometimes even annuities. I think shoppers are attracted to these policies because they often increase the odds of seeing benefits. With LTC, generally, it’s use it or lose it. Personally, I’d instead not use it, but I still want a great value from my policy.
If you look at a life insurance policy with living benefits like a LTC rider and the death benefit, the question is whether we get Long Term Care coverage first. They may even include a cash value account, which can grow tax-free and come out tax-free when appropriately handled. The upside is that life insurance has more protection from premium increases; the downside is you may end up with some extra fees to cover the life insurance cost.
Don’t put your head in the sand; if you are in your 50s or beyond, at least have the LTC discussion with your trusted Fiduciary CFP®. I like to think that investing in your LTC plan now guarantees you some TLC later. There is real value in knowing that you and your loved ones are appropriately covered.
Long Term Care Coverage For LGBT Couples:
LTC planning and covering is impertive for LGBT couples. Realistically, anyone else without children faces added cost when it cover to elder care. We cover this topic more fully in the post – Who Will Provide LTC care for LGBT retirees?
Until next time, and as always, Be Fiscally Fabulous, and remember Your Money Matters.
DAVID RAE, CFP®, AIF® is a Los Angeles retirement planner with DRM Wealth Management. He has been helping people reach their financial goals for over a decade. Follow him on Facebook or via his website, www.davidraefp.com.
Guarantees are contingent on the claims-paying ability of the issuing insurance companies. “How to Buy Long Term Care Coverage (INSURANCE)” Copyright 2016
Connect With David Rae, Financial Planner LA
David Rae, CFP® AIF®
President / Founder DRM Wealth Management LLC
1(323) 905-4380
david.rae@financialplannerla.com
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