In a famous movie of the 70’s, Dirty Harry said, “You’ve gotta ask yourself one question: “Do I feel lucky?” Were he to ask that question of you or me today, it might not be about bullets but about how we’re going to pay for our long-term care.
Why Consider Long-Term Care Coverage
One of our recent articles took an in-depth look at life insurance and why so many people avoid buying insurance we’re guaranteed to use. Another difficult reality is the likelihood that as we age, we may become unable to care for ourselves and will have to rely on the assistance of family and/or health care providers on a daily basis. The majority of us wish to remain in our homes as long as possible, but with as little financial stress on our loved ones as possible. Enter long-term care insurance. Long-term care (LTC) insurance affords the support and services required to care for elders in their home or in a skilled nursing facility, as they face declining health, disability or a prolonged illness.
Though we have little control over whether we will need long-term care, we do have some control over how our care is handled, especially from a financial standpoint. This article provides an overview of the considerations that must be taken into account when determining if an LTC policy is right for you and ways to rely more on logic and rationale than luck.
Chances Are, You’ll Need Long-Term Care
Another Boomer turns 50 every seven seconds(1). That means four million Boomers – 28% of the population – will turn 50 this year. Of those who turn 65, a whopping 70% can expect to need some form of long-term care during their lifetime(2). LTC insurance enables elders to remain at home by providing supportive personal care for activities of daily life (ADL) which may include: bathing, dressing, toileting, transferring (from bed to chair), food preparation and eating, medication, incontinence management, light housekeeping and eventually skilled nursing care in a nursing home, if needed.
A recent report in Morningstar said that 40% of individuals who reach the age of 65 will enter a nursing home during their lifetimes. Medicare does not cover costs associated with loss of ADLs and will only pay if you need skilled care in a Medicare-certified facility in certain circumstances. It’s not just about nursing home stays, many individuals desire to remain at home and some may need to be in a facility with a different level of care. Regardless of where long-term care is provided, the financial burden and stress on family members can be significant.
LTC Insurance vs. Self-Insuring
With the average annual cost for nursing home care at $70,000 and an average claim period of three years, the costs can be prohibitive for many. Add to this the variables of age, health status, overall retirement objectives, income and wealth, and the decision on whether LTC insurance is needed becomes more complex.
A sound decision on whether to purchase long-term care insurance or self-insure involves weighing the probabilities. Is it worth it to pay the (high and increasing) premiums for many years and risk premium increases or benefit cutbacks along the way in exchange for the peace of mind that your nest egg won’t be wiped out to pay for your end of life care? Do you have the ability to self-insure, with enough wealth to cover your LTC costs as long as needed, and perhaps not just for you but also for your spouse? Before you roll the dice and make a decision, think carefully and realistically about your wealth and how your financial plan is (or is not working) in a way that will enable you to maintain the level of financial independence that allows you to self-insure. A few hours with your family’s wealth planner will be time well spent in making a wise decision.
Long-Term Care Policy Considerations
Here are some guidelines to follow if you are thinking of buying LTC insurance:
- Only consider companies that have been rated “A++” (by A.M. Best), which means they are of the highest financial strength. It also means that rates are less likely to rise after a few years and will cover you for in-home care, nursing home care, or assisted living.
- The prime age to buy is late 50s to early 60s.
- Self-insuring is a possibility, but as mentioned above, your level of sustainable wealth must be considered. What percentage of your liquid net worth are you spending? If less than 3-5% and depending on assets and asset allocation of your portfolio, you might be alright.
- Make sure the benefit adjusts over time based on inflation. Current adjustments are averaging 3% from previous highs of 5%.
- LTC policies with a lifetime benefit have become cost prohibitive and nearly impossible to find. Look for a 5-year benefit with a 6-month waiting period upfront.
- Adult children of aging parents may want to consider paying the premiums on their parents’ policy themselves for two reasons: To protect their financial interest in any possible inheritance and to protect their parents against medical expenses they may face some day.
- If you find that you and your spouse both have a need, look for marital discounts which can save some money as well as allow you to share a pool of LTC benefits.
In each of these cases, a qualified and experienced wealth planner will be able to analyze each of these considerations as they relate to your own decision-making process.
The odds of needing long-term care are high, but the need for long-term care coverage is not the answer for everyone.
Ultimately, the “right” decision will be evident only in hindsight. In any case, the decision to buy long-term care insurance is a highly personal choice that will revolve around your health and finances among other factors.
A knowledgeable professional can best help you decide if LTC coverage is right for you, and can point you in the right direction for an appropriate policy if that’s the direction you choose. At SHWM, our in-house expertise, coupled with the fact that we do not sell products means we are able to provide completely objective advice about LTC coverage. Please call us at 404-874-6244 for guidance in your decision-making process.
In a related article, we take a look at the new hybrid long-term care policies that match together a life insurance or annuity policy with long-term care coverage. These policies are filling a gap left by high LTC coverage costs and shorter-term policies.
(1)US Department of Commerce
(2)US Department of Health & Human Services