Can You Really Plan for Long-Term Care?

Charlie Bowers Academy, Insight Investing Articles, Insurance, Long-Term Care Insurance, Risk Management

That’s My Boy!

Lori and I have our two children, Chuck and Jordan.  As any parent, who raised their children in a responsible way, we thought our kids would take care of us to some degree in our later years.

I was in the family room one day when Chuck was about 12 years old.  He and Lori were talking in the kitchen, when I heard Lori pose an all-important question: “Chuck.  When I get older, will you take care of me?”  I walked into the kitchen for the response.  I was proud and I was smiling big.  Chuck had a concerned look on his face and was really considering the implications of Lori’s question. That’s my boy!   He finally exhaled and answered: “No. But I will get you a Life Alert®.”  Talk about an unexpected response….

After the both the humor and the shock wore off, Lori and I decided we still had the responsible younger child to take care of us.

Fast forward 6 years when Jordan was about 12 years old.  I was in the bedroom and Chuck was upstairs. I was trying to ignore Lori and Jordan in the kitchen as they were arguing with each other.  After a few minutes of continuous bickering I hear Jordan yell up to Chuck: “Chuck! I’ll go in with you on that Life Alert®!”

So, the bottom line is that Lori and I are going to have to look somewhere else for care as we get older…..

But Let’s Get a Bit More Serious

On a more serious note regarding long-term care, my in-laws, Lori’s parents, Bill and Janet were thoughtful, caring, and very responsible people.  They did a great job living life and raising my wife.  Thank you, Bill and Janet.

In 2001 Bill and Janet were in their mid-sixties and thinking about care in the future.  Lori was an only child and they didn’t want to burden her with the possibility of hours and hours of looking after them should they need assistance.  Doing the responsible thing, they contacted an insurance professional to discuss long-term care options and policies.  After the meeting, they were interested and were going to decide between two policies and get back with the agent.  Unfortunately, the next day was September 11, 2001.  The tragedies of that day changed their immediate focus, which is perfectly understandable.  The problem was that they never got back around to deciding on a policy.  They both would have greatly benefited from long-term care benefits as both experienced failing health a number of years later.

Fortunately, not every month, year, or even decade has an event anywhere near as devastating as 9/11 or that has near that power of distraction.  However, every day tends to have worries that tend to distract us and can easily result in our procrastination in making important life decisions.

What We See

We understand that long-term care insurance can be expensive; and in addition, it feels bad to think about possibly paying for expensive insurance, and then never have need of its benefits.  However, needing to take advantage of the benefits isn’t a pleasant thought either.

There are three primary “personalities” of people that come into our office regarding long-term care.  Those who have closely experienced a need first-hand.  They tend to strongly consider and discuss if a policy is right for them.  Those that have never been close to someone relying on long-term care.  They tend to give it little thought.  And for those that have some knowledge of long-term care issues but want to help their children take care of them if need be, then long-term care is an issue of interest.  We have planned and strategized with many people regarding solutions to their long-term care concerns.

Let’s Look at Some of Costs

Experts believe that 70 percent of people older than 65 will need long-term care at some point in their lives.1

According to the Genworth 2017 Annual Cost of Care Survey2, the annual median cost of long-term care services increased an average of 4.5 percent from 2016 to 2017, nearly three times the 1.7 percent U.S. rate of inflation, and most people foresee the cost of healthcare continuing to rapidly rise.  Below are some of the costs for care in the Genworth Survey:

  • Home health aide services, up 6.17% to $21.50/hour
  • Homemaker services, up 4.75% to $21/hour
  • Adult day health care services, up 2.94% to $70/day
  • Assisted living facilities, up 3.36% to $123/day or $3,750/month
  • Semi-private room nursing home care, up 4.44% to $235/day or $7,148/month
  • Private room nursing home care, up 5.50% to $267/day or $8,121/month

Morningstar3 estimates the lifetime cost of care for someone with dementia is $341,840.

The bottom line is that the potential cost of long-term care is something that should be taken very seriously.

So What Can You Do?

The first step is to get together with us and make a plan to address your needs; then we will help determine the appropriate way of paying for care; and then it’s time to take action.

Several options for preparing and paying for long-term care are discussed below:

1 – Self Pay

This is certainly an obvious alternative and for those who make no other arrangements, the default plan for handling these costs.  For some who have ample assets, it could be the best choice.  But what is “ample?”  This would have to be some sort of relationship between assets and long-term care costs, but unfortunately you can’t really anticipate future needs with great confidence.

2 – Government Benefits

Many people think that Medicare will cover long-term care, but they are mistaken.  Although Medicare does cover some home and nursing home care, it is only for rehabilitation purposes and not for the long-term.

Some can pursue their state-run Medicaid program to cover the long-term cares expenses but qualifying for Medicaid is not easy.  Because of the income and asset limitations associated with this program, make sure you consult with an experienced elder care attorney.  Planning for long-term care using government benefits can be quite challenging.

3 – Traditional Long-term Care Insurance

This type of policy has been around for decades but is falling out of favor.  In fact, many companies that once were known for offering this type of policy, no longer offer it.  The combination of rising health care costs and the increasing life expectancy has caused this type of policy to become too great a liability for the insuring company.

Also, this type of policy can be quite expensive for the purchaser, and unless a return-of-premium rider was purchased with the policy, something not typically offered on newer policies, a traditional long-term care insurance policy has no value if it lapses or you pass away.

4 – Combined Life Insurance with Long-term Care Benefits

Another type of policy that is now finding favor is a life insurance policy that is combined with long-term care benefits.  Not only can the long-term care benefits function similarly to a traditional long-term care policy, but if you pass away prematurely, your beneficiaries will receive a tax-free death benefit.  There is also the possibility that if you have the need or desire to give up this policy, some or all of your premium may be returned to you.

5 – Combined Annuity with Long-term Care Benefits

This type of strategy is similar to the combined life insurance product but might offer a higher dollar amount of care benefit or have more lenient underwriting parameters in leu of the tax-free death benefit.  Care must be taken when researching annuity products when looking for long-term care.  Some annuity policies offer something like a “home health care doubler” where the monthly payout will double for a limited period of time; for perhaps 5 years.  These contracts are not considered long-term care.

6 – Life Settlement

An existing life insurance policy is a legal asset with ownership rights.  As such, if the life insurance benefit is no longer needed or the premiums are no longer affordable, it could be possible to sell the policy to a third-party to help fund long-term care.

Bottom Line

It’s never too early to plan for long-term care, to take care of yourself, your spouse, your kids, and the rest of your family.

If you choose not to plan and take action to acquire long-term care protection, then please review the costs presented above and understand these costs may become part of your life.  Also reflect on the impact on your loved ones that you may need to help take care of you, or the impact on you if you have to commit to taking care of your loved ones.  We all want our loved ones that need assistance to get the best quality of care possible, whether we are taking care of them, or they are taking care of us.

If you choose to plan and take action to acquire long-term care protection, then you will live your life knowing that you, your spouse, and your loved ones are cared for in the best way that you possibly can and that you won’t have to rely solely on Life Alert® as your long-term care protection of choice.

Don’t let willful ignorance, procrastination, or fear of making a mistake keep you from taking the simple steps you truly need to take.  Contact us to start that conversation.  Remember.  It’s too late comes way too soon!

1 "Who Needs Care?" longtermcare.gov., U.S. Department of Health & Human Services, Feb. 21, 2017.

2Genworth 2017 Annual Cost of Care Survey: Costs Continue to Rise Across All Care Settings, 09/26/17

http://investor.genworth.com/investors/news-releases/archive/archive/2017/Genworth-2017-Annual-Cost-of-Care-Survey-Costs-Continue-to-Rise-Across-All-Care-Settings/default.aspx

375 Must-Know Statistics About Long-Term Care: 2018 Edition, Christine Benz, 20 Aug 2018

https://www.morningstar.com/articles/879494/75-mustknow-statistics-about-longterm-care-2018-ed.html