long term care
I noted in my newsletter a few months ago that the topic of aging and elderly parents needing assistance has been a frequent topic of discussion in many of my recent meetings. There is no doubt that this stage of life can present challenges. This month I want to look at long term care insurance as it is a tool designed to help ease the potential burden.
What is Long Term Care (LTC) insurance?
Long term care insurance is coverage that will pay for assistance with care in the event you can no longer care for yourself, generally defined as activities of daily living that include bathing, dressing, transferring, toileting, continence and eating.
Many people in the business of selling LTC will rattle off statistics such as those by AARP that find 52% of people over 65 will need LTC services at some point and a nursing room costs $92,000 a year on average. While those numbers may be true, I believe a deeper dive is needed to truly understand the impact. A blog post by Vanguard tells the story of two grandmothers, one which needed substantial care and the other that didn’t, and nobody knows which one they will be. Vanguard’s research shows that of retirees, only 15% will incur costs over $250,000. Further, 48% of retirees will have no LTC costs and another 26% will have costs of $100,000 or less. Of course, those who are part of the minority and do incur substantial needs for a long period of time will be grateful to have the coverage.
Types of LTC insurance:
Traditional LTC insurance provides benefits of a certain amount (often a daily amount) for a certain period and you generally pay premiums until you qualify for coverage. Costs on these policies have gone up substantially since introduced in the 90’s.
Hybrid LTC policies were introduced to offer additional features and help people who didn’t like the idea that they could pay substantial premiums over time and never realize the benefits. These policies can include life insurance or annuities that offer specific benefits for LTC, yet have more flexibility with how funds can be accessed or inherited by beneficiaries.
Note: On any policy there are many options to consider such as if there is a cost of living adjustment to help keep up with inflation, will they pay for home care, do you receive a check for a certain amount or get reimbursed, can family provide care, etc.
Potential alternatives if you don’t have LTC insurance:
Medicaid (Medi-Cal in CA). Keep in mind, this is not Medicare insurance that provides health insurance coverage for those 65 and older (which doesn’t provide LTC coverage as being discussed here). This coverage is available when you have essentially depleted all your resources. The coverage is more limited, and facilities are often a lower standard than desired.
Veterans benefits. There are many complexities to the program but if you or a family member are a veteran you can contact the Department of Veterans Affairs to learn more.
Home equity. Many people I talk with have a lot of equity in their home and in the event they spend down assets they view their equity as a backup plan that can fund LTC expenses. This may be by selling and downsizing or moving into a senior facility, a line of credit or a reverse mortgage (which would need to be very carefully considered and explored).
Family. In many cases and often by default rather than design, families end up bearing the brunt of the burden. This often isn’t the best choice but if it is your plan make sure it is discussed with those involved. They may even want to help you purchase LTC insurance rather than be your backup plan.
When helping people decide if they should purchase LTC insurance I often start by using three categories of individuals:
Behind on retirement savings: The first category is those who are not well prepared for their future retirement and need to focus on saving more money and LTC insurance shouldn’t be their priority in my opinion.
Have more than enough: On the opposite end, there are those who have more than enough financial resources to support their needs and can fund their own LTC expenses if the need arises. Some people in this group may elect to purchase LTC insurance as a strategic decision, but they really don’t need it.
On track: The middle category is one that is generally on track for retirement and can afford LTC insurance, yet a significant LTC event could derail their retirement plans. I believe this group should consider options available and then make an informed decision.
As you can see, there is no clear-cut answer on whether to purchase LTC insurance or not, but it is worth discussing so as to make an informed and purposeful decision. Also remember, coverage doesn’t have to be all or nothing in the sense of fully covering the risk, but some coverage may help take the sting out of these costs. If you would like to discuss this, email me at firstname.lastname@example.org or call 858-805-1022.
Advisory services offered through Arbor Point Advisors. Securities offered through Securities America Inc., Member FINRA/SIPC. Arbor Point and Securities America are separate companies. CA Insurance #0E88557