The answer to whether you should buy Long-Term Care Insurance lies in 70/70/100.
What does 70/70/100 mean? 70% of folks 70 and older will need some sort of long-term care but 100% of people say it won’t be them. Most people are just in denial regarding their prospects of getting sick in the future.
What IS Long-Term Care Insurance? It is insurance that covers a wide variety of treatments and aid for areas such as home health care, adult care and assisted living. Where most people get it wrong is, they look at buying Long-Term Care Insurance as an investment. As the name says, Long-Term Care Insurance is insurance. You put in place to protect your other assets, or investments, from a spend down.
From the Longtermcare.gov website, here are the National Average Costs from 2016:
- $225 a day or $6,844 per month for a semi-private room in a nursing home
- $253 a day or $7,698 per month for a private room in a nursing home
- $119 a day or $3,628 per month for care in an assisted living facility (for a one-bedroom unit)
- $20.50 an hour for a health aide
- $20 an hour for homemaker services
- $68 per day for services in an adult day health care center
Starting from the top, what you’re looking at is $6,844 per month in an assisted living facility with the average stay of 4 years. On average this equals a total of $328,512. Keep in mind, the average stay for Memory Care (Dementia, Alzheimers) is 8 years. You can see the numbers add up very quickly. If you had a solid Long-Term Care policy, most of those expenses would be paid for by the policy.
Who needs Long-Term Care Insurance? If the statistic above holds, then 70% of those over age 70 will need it. If you ask a son or daughter who is taking care of one or both of their elderly parents, they will be the ones who quickly say that having Long-Term Care Insurance is a huge benefit. Who really needs it? Someone who does not have the assets to self-insure if they start getting huge medical bills. How much coverage do you need? That depends on how much of the cost you want to supplement with the policy vs. paying out of pocket. If you have other assets maybe you only need to cover half of what you think you may need on a monthly basis and use your other assets to cover the other half.
What types of Long-Term Insurance products are available?
Keep in mind, this is not your parent’s Long-Term Care Policies. Back in the 1980’s, interest rates were much higher and insurance companies made some pretty lofty projections that never worked out. Thus, the older Long-Term Care Policies grew more expensive over time forcing a lot people to drop their policies which they never saw a benefit from.
Today’s Long-Term Care marketplace offer several different types of policies and riders to choose from.
Here are the most popular:
Traditional Long-Term Care: These policies tend to give you the biggest benefit of all the options. You pay these over time, much like you would your auto insurance (monthly or annual).
The monthly benefit: (How much coverage do you want each month?)
The benefit period: (How many years do you want to be covered?)
Inflation protection: (You can pick how much you want to protect against inflation each year.)
Waiting Period: (How long will you wait before your policy kicks in? 30 days, 60 days, etc.)
Your policy is guaranteed renewable meaning that you will always have coverage but the cost of your policy CAN go up over time.
Single Premium Long-Term Care Policies: These policies are funded with one single lump-sum deposit and you never have to add to them again. Based on a number of factors such as the amount you put in, your age and health, whether you want a shorter or longer benefit period, inflation protection and waiting period will all determine the amount you’ll receive for the monthly benefit. You can also back into these policies. For example, if you know you want to cover for $5,000 a month, 4-year benefit period, 3% inflation protection and a 60-day waiting period, then the policy might indicate that you’ll need to deposit $150,000.
Many of the Single Premium Long-term Care Policies will come with a small life insurance component such that if you die and never used your policy, your family will receive a portion of it back. As time goes on, many of these policies will start to build some cash value but it’s a slow process and you generally won’t see much in the first ten years.
Hybrid Long-term Care Products: Many permanent life insurance policies come with the ability to purchase a Long-Term Care rider. This nice thing about these types of policies is that if you don’t end up using the Long-Term Care part, your family will be made whole with the life insurance proceeds.
Also, many annuity products now have a long-term care rider that can be added. These come in the form of an income doubler or access to your money should you have a Long-Term Care need.
How do you pay for Long-Term Care? You can write a check. Use that old CD money in the bank to fund a policy. You might have an old life insurance policy that you don’t need any more that has cash value which can be used to fund your policy. An annuity can always be moved to pay for your policy.
When is the best age to buy Long-Term Care Insurance? The earlier the better. Typically, between age 55 and 65 is the best because once you get over age 65 the costs start creeping up.
A good Long-Term Care Policy can protect your other assets in case a need arises. Will you need it in the future? None of us really know unless you have some underlying health issues now. But you know what they say: “It’s better to be safe than sorry.” I wholeheartedly agree with them.
Live free (and with peace of mind) my friends,
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Investment Advisory Services offered through Shankland Financial Advisors, LLC, Registered Investment Advisor