Long-term care insurance – not just for senior citizens!
Many in their 40s and 50s begin to wonder about long-term care insurance. They may be taking care of an aging parent or seeing someone they love that needs an assisted living facility, in home health care, or a nursing home. When health begins to deteriorate, help and assistance is critical and often very pricey (as if health insurance isn’t pricey enough). So that brings up an interesting question: who needs long-term care insurance?
When is best time to buy long term care insurance?
You would think well you probably don’t need the insurance until you’re a bona fide senior citizen in your 70s or 80s when most people need the care, right? You could do that, but if you wait that long, you could probably buy a brand new Lexus every year with the amount of annual premiums you’d be paying. Just like life insurance, long-term care insurance increases steadily the older you get – particularly after age 60. Think about, the older you are, the more likely you would need the care – hence the higher the price!
So how could you pay for long-term care?
Unfortunately many people do not plan ahead. With the average nursing home costing over $200 a day, unless you have a money tree out back, this could wipe out your family if you need care. The ideal candidate for long-term care insurance is someone who is age 50 or older (younger the better). As more and more baby boomers begin to retire and potentially live longer than their parents, long-term care planning will become a much more important part of their financial strategies.
So why have long-term care insurance?
I am not the type of advisor that believes every solution resolves around insurance. Instead, I believe individuals should take on the risks they can afford to take and insure the risks they cannot afford to take. That is why homeowners, auto, disability, health, and in most instances life insurance are key components of a proper financial plan.
With long-term care insurance, your premium payments provide you with access to a large pool of money to pay for long term care costs. The major goal of the insurance is to protect your assets (home, retirement savings, and income). If there is nothing to protect, I wouldn’t consider buying the insurance unless you insist on having in home care versus that of a facility.
Here are a few statistics courtesy of Genworth Financial. Their 2010 report found that:
- In 2010, the median annual cost of a private room in a nursing home is $75,190 or $206 per day – that is an increase of 25% or $14,965 since 2005.
- In 2010, the median annual cost of a private one-bedroom unit in an assisted living facility is or $38,220 or $105 a day – that is an increase of 12% since last year!
- In 2010, the median payment to a non-Medicare certified, state-licensed home health aide is $19 an hour. So 40 hours a coverage a week would be $760 or almost $40,000 a year.
So where would this extra $38-$75K a year come from? Imagine needing this type of care for 3, 5, 10 years or longer… Both my grandparents prior to passing away needed at least 3 years of this type of coverage in one form or another. You probably also know someone personally who has needed care for three years or longer. A recent report from AARP noted that approximately 60% of people over age 65 will require some kind of long term care during their lifetimes.
So why wait?
The older you are, the more expensive long-term care insurance premiums will become and less likely you will qualify for care. Those with poor health and ailing conditions may get denied coverage so it is critical to look into this type of insurance before you retire and while you are still healthy.
Long-term care insurance can be used not only for for nursing home care, but it can also be used to pay for a wide variety of nursing, social, and rehabilitative services in the comfort of your own home or at a facility. Those with chronic illnesses, disabilities, or those who may who just need some assistance with bathing, eating, dressing, or monitoring, can benefit by having some long-term care coverage in place.
The biggest question
Often people ask me how much long-term coverage is enough. This is the equivalent of how much life insurance should you have. Long-term care insurance is typically purchased based on a daily benefit amount (DBA). This is the maximum amount your long-term care policy will pay per day.
When purchasing LTC insurance you will often select the DBA, the length of time that you may receive the full DBA on a daily basis, and if you want inflation protection or not (DBA to increase based on an inflation factor). The proper amount of LTC coverage is the amount that protects the bulk of your assets and income. If you can afford to pay for a portion of your care, then you need less coverage. However, if you want your coverage to provide full benefits you will need to research the current average costs in your state and make sure you have some inflation protection to keep up with rising health care costs.
What about Medicare?
I often hear of people assuming Medicare will pick up the cost of long term care for them or their loved ones. This can be a misguided strategy as Medicare and long-term care insurance are not one in the same. In fact, Medicare only pays for the first 100 days of nursing home care. Additionally Medicare is only for:
- Receiving skilled care (i.e. licensed professionals)
- Going into a nursing home right after a hospital stay of at least 3 days.
- Receiving limited home visits for skilled care, and some hospice services for the terminally ill.
Now, if you are destitute, and have no other means to pay for care, Medicaid can pay for long term care. However, I do not advocate waiting until you are broke in order to find a way to pay for care. Planning ahead and using long-term care insurance can provide solutions to save your family’s assets before you drain them through expensive care.
So should a Christian own long-term care insurance?
Is it a lack of faith to own this type of insurance or is this using good common sense? There are many factors to consider such as your faith and values, your age, likelihood that you may need care, what you have to protect, and quality of care you desire to receive to name a few.
Many assume that their loved ones (family and friends) will take care of them when they are unable, but from past experience and that of others, I can personally tell you that being a burden to someone can become emotionally, physically, and financially draining on those taking care of you. My opinion is that it is always best to plan ahead. Not to take God out of the picture, but to use the tools and resources He provides so you can be the very best steward you possibly can. This includes long-term care planning – not necessarily insurance but having a proper plan in place in the event you need some care.
In my opinion, most people don’t need LTC insurance. If and when the time comes, it makes sense to sell your house and also use your retirement income. LTC insurance is very expensive and you would be better off investing those would be premiums into your retirement account.
If you don’t have sufficient assets (house, retirement account, etc), then it may make sense.
We have been paying a large amount every month for 15 years for long term care and they recently sent a lettter stating that they are now raising our monthly payment even higher!! My husband and I are on Soc. Security with some investments but these costs are becoming prohibitive. It does not seem fair to raise our costs at such a time when Soc Security is not being raised and inflation is killing all of us. Is there any solution?
Traditional Long Term Care Insurance is a health insurance policy. Typically after a guaranteed rate period the premiums can go up based on the performance of that companies policies. There are alternatives. You can self insure as the commenter stated above. You can by a life insurance policy with a long term care rider to provide the same pool of money to be paid either as a death benefit or for qualified long term care expenses. Or you can single pay for coverage and use a lump sum to buy a pool of money for long term care. Each option, including traditional long term care, has pros and cons that should be discussed with a qualified insurance professional.