Long-Term Care Insurance
Long-Term Care Insurance
No one likes the thought of spending their last years in a nursing home it often especially difficult to find money today from our stressed budget to pay for it. It is also difficult to find the money to pay for long-term care insurance (LTC) yet the potential burden of paying for long-term care is simply too great to ignore. Unfortunately, another one of the consequences of the disappointing stock market returns in recent years is the necessity to review our insurance coverage.
Some people who thought they could pay for long term care with out-of-pocket investments now realize they may need to re-think that decision. Even if you’re too young to consider long-term care insurance for yourself, it’s an important conversation to have with your parents.
My friend and colleague, Kathleen Rehl, another fee-only Certified Financial Planner has written about long-term care and invites us to think about different considerations.
According to Kathleen, there are four strategies to pay for long-term care:
- Self fund (paying for it out of your existing assets)
- Self fund plus buying basic short benefit period LTC insurance
- Self fund plus buy LTC with a long elimination period
- Buy LTC insurance to cover most or all of your LTC costs
Even after the market decline some people have enough assets to cover their expenses. There are the people who can self- fund which is to say they can afford to pay any necessary expenses associated with long-term care without help.
The second group is the self fund plus basic LTC insurance. Some consider this as an easing into, or “help me take that first step” approach. Most people want to stay in their own home as long as possible. In many cases professional assistance is not needed 24 hours of every day — at least not in the beginning. One spouse or partner who is willing and able could manage caring for a loved one for some time, perhaps with the assistance of other family members. But these caregivers eventually wear out. These individuals might be able to afford help, but they hate to start spending money for caregivers since this could be a long and expensive process.
In this situation, a basic long-term care policy can help during the early time but it will not to take care of everything, nor will it last over the long term. This approach makes it easier for a caregiver to decide that they need help and to bring in some professional assistance sooner rather than later. This plan makes the burden of care giving much easier both financially and emotionally.
The third group believes they can pay for the early costs of LTC but want protection and payment assistance if coverage is needed for an extended period of time. These people can pay for the early costs of needing LTC by self-funding from their assets and using family assistance. They will pay some of the long-term costs but do not want to totally self-insure. In this situation a longer elimination period (the time before the policy is in force) will reduce the annual premium.
The last group wants their LTC insurance to pay for as much as possible, and these individuals are willing to pay for the maximum benefits available. They don't want to deplete their savings and investments to pay for their LTC. They don’t want any family members to worry about where the money will come from to pay for any needed care. They want their assets to go to friends, family and charity and are willing to purchase the long-term care insurance to make sure their assets are used in that manner.
The cost of the premiums is based on the age, health and desired coverage of the applicant. The younger you are when you get insurance the less expensive it is but the longer you may need to pay the premiums before you need, if ever, to use the insurance.
I found these categories helpful in deciding the amount of need for long-term care insurance. Unfortunately, since long-term care is a policy always sold on commission, you’re often encouraged to purchase more than necessary. If you receive a pension, for example, that pension will continue and that which reduces the amount of coverage needed. You only need insure for the “gap” between the cost and what you can afford to pay.
The decisions about long-term care insurance are important and far-reaching and rates differ among policies sold by various company representatives. Include the advice of an objective professional such as an estate attorney and/or fee-only financial planner in these important conversations.