LONG-TERM CARE INSURANCE
Assurance Financial Solutions (205) 578-2097
70% of people over the age of 65 will need long-term care. The average cost for assisted living in Birmingham, Alabama is $37,000 per year and $73,825 per year for a semi-private room in a nursing home. A few minutes of planning today may literally save 100s of $1000s of dollars later. Call or email me today to learn more about this valuable resource. (Data Source: Genworth Financial, Cost of LTC for AL, 2015)
Long-term care insurance helps cover chronic illness or the loss of your daily activities requiring medical care or assistance.
An article on healthcare from the Wall Street Journal in 2012 said it best, “Long-term care insurance. It’s a subject most people don’t want to think about-but many people know they need too.” There is a four letter word in that sentence, “many.” How much
There is a 50% chance that either you or your spouse will require long-term care at some point in your lives. What is your plan for chronic illness? -Sam Price
Question: What is the number one reason for bankruptcy in retirement?
Answer: Healthcare spending.
Does that sound like a scare tactic? You bet it does. Over the course of my career in financial services, I’ve always said that there are two things that people routinely avoid-looking at; their life insurance and getting a proper will done. I’m going to add thinking about long-term care to that list. No one wants to consider some of the costs associated with ageing. I get it. It’s not fair. You saved and worked over the course of your life to prepare for retirement only to see a chronic illness eat away at your nest egg. Here’s the deal. If your retirement planning isn’t covering the cost of healthcare in retirement, it’s time to act. There is a Proverb that states, “where there is no vision, the people perish.” (Proverbs 29:18) To say that another way, you have to have a plan! My wife and I enjoy Dave Ramsey. We’ve been through financial peace, we listen to him on the radio. I’ve spent time brokering with other independent agents in the Ramsey network. I don’t agree with everything he says but I often refer to his education as, “grandma and grandpa finance.” Our grandparents saved their money and they didn’t spend what they didn’t have. Revolutionary thinking isn’t it? One of the reasons why I enjoy sitting in the classes involves the heart change that people have when they transform their thinking on their money. What is the first two steps to that “financial peace?” Being honest about where they are financially and making a plan! What does this have to do with health care spending in retirement? You have to have a plan for addressing your health care costs in retirement. Hoping for the best isn’t a plan! Here are some hardcore statistics according to that same Wall Street Journal article: 70% of people over the age of 65 will need long-term care. The average cost for care per day is $150 per day, or $4,500 per month. The average length of claim is 33 months. That works out to $150,000 of out of pocket spending on chronic illness and that’s just bell curve average. That need increases exponentially with Alzheimer’s patients as patients can be in great health while needing round the clock care. What’s your plan?
What is Long-term Care?
Here’s a good Google definition: Long term care refers to a continuum of medical and social services designed to support the needs of people living with chronic health problems that affect their ability to perform everyday activities. Long term care services include traditional medical services, social services, and housing.
Health professionals and insurance companies for that matter, view long-term care and chronic illness in the context of losing two or more of your activities of daily living or your ADLs for short. Those ADLs are:
- Self feeding
- Being able to move from one place to another
- personal hygiene
- using the restroom on your own.
A person that loses any two or more of those essential functions from an illness or through the natural process of aging is considered to be chronically ill. A chronically ill person will receive care typically from one of three options:
- Some one in the family, i.e., a spouse or traditionally the oldest female.
- If family care isn’t a good option and the chronic illness isn’t too severe then a health-care professional can administer care within your own home. Home care can include anything from medical treatments to something as simple as general cleaning and cooking.
- If a person requires more care that can be given by either family or a healthcare professional/nurse, then some type of assisted living or nursing home is your best option.
Option 1 in the above scenario isn’t expensive to you but potentially damaging to your children as many times they have to rearrange their lives, quit a job or move closer to provide care. Options 2 and 3 are where you begin to incur the heavy out of pocket costs for care.
Options For Covering Long-term Care Expenses
There are generally four ways to plan for chronic illness costs:
- Self-insure. If you’re relatively wealthy you might choose to pay costs out of pocket. How much should you save to cover costs? I frequently recommend that seniors have at least the average cost (remember the $150,000 in savings from above from $4,500/month over 33 months) if they are choosing to self-insure. Don’t panic yet if you don’t have $150,000 sitting in the bank. If you’re preparing early, $75,000 invested with a 6% rate of return at the age of 55 will get you right at $150,000 by the time you’re 67 (not inflation adjusted).
- The Hybrid Life insurance or annuity based long-term care. One of the biggest trends in the long-term care industry is life insurance or annuity based long-term care coverage. Many insurance companies are adding permanent policies with riders for chronic illness. Based on your age, you can take a portion of the death benefit and turn those into chronic illness dollars. It’s not necessarily any cheaper than the traditional, stand-alone long-term care policy. But there are advantages in combining the two for financial planning purposes as you now have the value of a tax-free death benefit through the life insurance. Annuity based coverage plays an important role for those who aren’t generally healthy enough for the stand-alone policy as annuities are easier to underwrite. The annuities can add income in retirement and give you the option to use those assets for chronic illness coverage. This can be an attractive option for those who don’t want to “lose” all the money paid in premiums in the event you never needed the policy.
- The traditional, stand-alone policy. If you do not have enough assets for an annuity to make sense, and you’re still relatively healthy, the stand-alone policy can be a great option for you. The thing I like about the stand-alone policy is that it’s built to suit your need or fit your budget. If the premium is more than you want to pay, the benefit, benefit period (length of coverage), elimination period and inflation protection can all be adjusted to fit your need.
- Medicaid. Medicaid was created to cover the cost chronic illness for those who could not afford it. If you have less than $150,000-$200,000 in assets between your home and savings, M
edicaidmight be a good option for you. You need to mindful that you don’t have as much say in how you’re cared for as it is government controlled. There is also a qualification process that many times can be hard to qualify for. If you’re seriously considering going in the Medicaid direction, an elder care attorney is going to be a must!
Things to keep in Mind:
- Plan early. The longer you wait, the more limited your options.
- If you decide to go the stand-alone policy route, selecting the carrier for you will be the most important part of the process. There has been an enormous amount of upheaval in the long-term care insurance market. Due to increased and unforeseen cost, many carriers have made the decision to get out of the business altogether. Many more insurance companies are taking huge losses in their LTC book of business which will lead to even more upheaval. On top of the upheaval, the carriers that did not properly price their LTC products years ago are having to frequently come back to each state and ask for rate increases. So picking the cheapest carrier with a bad history of rate increases can end up costing you much more over the life of the policy. Having said that, there are still excellent carriers to choose from. An independent
agentthat represents the best carriers in the market can find the best coverage and carrier for you.
- Think long-term in your planning rather than focusing on a premium today. Depending on your age or your health, premiums can be expensive. But consider the cost of needing an in-home nurse or an assisted living facility and that expensive premium may well protect your assets as well as those you love.
- Between the ages of 50-65 is generally the recommended age to start shopping for LTC. But if you have a family history of Alzheimer’s or another debilitating disease, it may be in your best interest to start even earlier.
- For many, waiting until age 60 may be too late. Of all the Alzheimer’s patients nationwide, only about 4% have the early onset form of the disease. But if you’re in good health and can afford an extra insurance premium, you could make a very good case for nailing down the policy in your mid 50’s.
- Make it a point and take some time to talk about these options with me. Planning doesn’t cost you anything but your time. In Financial Peace, Dave Ramsey tells a story about a close friend of his that he had been encouraging to get long-term care insurance. The friend put it off and put it off and finally decided to chance it without coverage. A few months later, his very healthy wife was diagnosed with Alzheimer’s. Choosing to pay the premium would have saved him hundreds of thousands.
CALL ME AT (205) 578-2097 TO CHAT ABOUT YOUR NEED.