Every one of us hopes to live to a ripe old age, enjoying good health, family and friends along the way. The luckiest of us will. But those of us who are less lucky may have to deal with serious and often ongoing health challenges that come with longevity. It’s unsettling to consider the possibility of needing daily assistance with the most basic activities such as eating or bathing. Yet, statistics indicate that more than half of all people reaching age 85 need some sort of help. Planning for those potential needs now may save a lot of money and heartache later.
Long Term Care
By definition, long term care (LTC) describes the various services provided to help meet the ongoing needs of people who cannot care for themselves independently. People of any age may need LTC, but in this article we will discuss the assistance that may be needed by chronically ill or disabled seniors to help them perform the activities of daily living, which include eating, dressing, bathing, and toileting. LTC can be provided at home or in assisted living or nursing home facilities. Care providers may be paid professionals or unpaid family members or friends. Medicare, the country’s largest senior health insurance plan, generally does not pay for it, which often comes as a surprise to people who assumed their care would be covered.
The Cost Of Care
Long term care can be extremely expensive. Though rates vary according to geography and the type of care needed, the cost of long term care- which is associated with the activities of daily living such as eating, bathing, and dressing, or the supervision of someone with Alzheimer’s- can easily climb over $70,000 per year. These numbers will mostly likely rise as life expectancies extend and the demand of care continues to increase. Unless you are part of the wealthy minority and are unconcerned with leaving an inheritance behind, paying for LTC out of pocket is nearly impossible.
Relying On Medicaid
All too often one spouse or both wind up requiring care and a significant amount of their savings may be spent paying for it. It is important to note that, in order to be eligible for Medicaid, individuals must meet strict income eligibility requirements. Also remember that most of us are used to having choices when it comes to our medical care. When you enter the Medicaid system, you are required to see Medicaid doctors and use Medicaid facilities. In some circumstances, these may not be the service providers you would choose if you had other options. Beginning in 2006, the largest generation in this country’s history-the Baby Boomers- began to turn 60. Many of them have amassed substantial wealth; however, their savings could quickly be reduced if they must pay for long term care expenses out of their own pockets.
Confronting The Costs
One strategy to prepare for the looming costs of LTC is with Long Term Care insurance (LTCi). Interestingly, though many pre-retirees seem to know that LTCi is available, they still do not own any. The reasons are diverse: some people do not want to think about becoming disabled; others wrongly assume Medicare will cover the cost of care; and still others are averse to the cost of LTCi policy premiums.
In truth, you may buy LTCi and never use it. In this case, you will have paid premiums for years, maybe even decades, and all that money will be lost the same way your car insurance and homeowner’s insurance premiums are lost if you never file a claim. However, if you should someday need long term care, just one year of coverage will more than make up for all the premiums you ever paid. Considering the average stay in a nursing home is 870 days- a little more than two years- chances are, if you ever require that type of LTC, the coverage afforded by your LTCi will give you more than your money’s worth.
Things To Consider When Buying LTCi
If you decide that long term care insurance is an important asset protection tool in your overall financial plan, the next step is to determine which type of policy best suits your needs and budget. As you evaluate the diverse and often complicated options, enlisting the help of a qualified financial professional is strongly recommended. Depending on your geography and the insurer, you may be able to take out an individual policy or one that allows spouses to share benefits. You will need to decide how many years’ worth of coverage you want, how much of a daily benefit amount you think you will need, and whether that benefit amount will be adjusted for inflation. Additionally, you should consider the following when choosing an insurer and a policy type.
Choice Of Caregivers And Location Of Care
You may want the option of choosing private caregivers or even non-professional caregivers such as family members or friends. For some people, home care is most desirable. Be sure to examine whether your policy allows for care in a variety of locations, including home care, assisted living facilities, and nursing homes.
Exclusions
Pay close attention to whether the policy excludes any illnesses, diseases, or pre-existing conditions. Since Alzheimer’s disease is a leading cause of dementia, and thus the need for around-the-clock care, make sure your LTCi policy covers it.
Cost Of Premiums
Of course you need to evaluate how the cost of policy premiums fit into your budget, but you should also be aware of whether the insurer reserves the right to raise rates.
Waiting Periods
Many policies insist on a pre-determined waiting period before full benefits kick in. Often, you can choose the length of the waiting period of your policy; typically, the longer the waiting period, the lower the policy premiums.
Know All Your Options- An Alternative To Traditional Long Term Care Insurance
To meet the growing need to finance long term care, some life insurance companies offer living care riders which can be attached to certain life insurance policies. In most cases, these riders can help policyholders offset the high cost of long term care by accelerating the death benefit of their life insurance policy. The payments toward LTC costs generally act as a lien against the policy’s death benefit by providing the funds, if needed, to pay for long term care, and thereby reducing the final payment to beneficiaries in the event of the policyholder’s death. But if long term care is never needed, the full death benefit is paid to the beneficiaries as long as premiums are paid according to the policy’s terms.
Each company’s life insurance policies and riders are different, and it is best to speak to a financial professional about the details. Though a long term care rider may not pay all the costs associated with long term care, they can help defray the sometimes overwhelming financial burden.
Growing old is part of life. Considering the alternative, it’s not so bad. Of course, no one wants to become a burden to their loved ones. Proper planning now can help you maintain your financial independence and freedom of choice later. Insurance of any kind offers financial protection for whatever the future may hold. No one has a crystal ball: we don’t know what the future holds. But you can prepare for whatever tomorrow brings through smart planning today.
By: Wayne Kuykendall, content courtesy of AXA Advisors
