LONG -TERM CARE INSURANCE

Michael T Braden August 29, 2024 LONG TERM CARE INSURANCE

WHAT IS LONG-TERM CARE?

Long-term care insurance can be an emotionally charged topic. It’s not exactly something you want to talk about at the dinner table. After all, no one wants to think about themselves or their loved ones being incapable of living on their own independently. But if you want to make a smart financial decision and protect your nest egg, long-term care insurance is a must!

To illustrate this, take Steve and Rachel, for example. They weren’t always smart with money, but they worked hard and built up a nest egg of $300,000. When Steve was 67 years old, he developed Alzheimer’s disease. At first, it wasn’t too bad. Rachel used some of their nest egg to hire a home-care specialist to help with Steve a few hours every day. But as his condition worsened, Steve had to go into a nursing home. Sadly, after five years in the home, Steve passed away. Rachel, now 72, is as healthy as she could be for her age, but she has to work full time because her husband’s stay in the nursing home devoured most of their nest egg.

Unfortunately, Steve and Rachel’s story isn’t unique. It happens to many people every year. But with long-term care insurance in place, you can keep it from happening to you!

LONG TERM CARE INSURANCE

UNDERSTANDING LONG TERM CARE

Long-term care insurance is nursing home or assisted living insurance. It pays for the long-term care (LTC) services some folks will need as they age or become ill and need help with daily tasks like getting dressed, bathing, and more.

And long-term care can get expensive— expensive. According to the Alzheimer’s Association, the estimated cost for end-of-life care in 2019 ranged between $233,000 and $367,000. Most health and disability insurance won’t cover long-term care, but long-term care insurance will.

Finding an independent insurance broker who will shop for several different long-term care companies and get you quotes can save you thousands of dollars and loads of unnecessary worries.

WHAT DOES LONG-TERM CARE INSURANCE PROVIDE?

Nursing Home Care
Assisted Living Facilities
Adult Daycare Services
In-Home Care
Home Modifications
Care Coordination

NOTE: Not all policies are the same, so talk to your independent insurance agent to find the best fit for your needs.

WHY WE BELIEVE EVERYONE SHOULD HAVE A LONG-TERM CARE INSURANCE POLICY

Did you know that over 14 million adults needed long-term care services in 2020? Purchasing Long-Term Care Insurance can give you peace of mind and protect the nest egg you worked so hard to build. You’ll know that if you become ill, you can afford the care you need and still have enough money in your nest egg for you and your spouse to eat. Plus, your kids won’t be burdened with huge payments for your care.

Now you may be thinking: What about government programs? Can’t they help? Don’t make the mistake of believing Medicare will cover long-term care costs. It doesn’t. And while Medicaid—the government program designed for people who truly don’t have any money—will cover long-term care expenses, it should never be your first choice.

Legal Point: It’s common for people to try to cheat the system by moving assets out of their parent’s name to get the government to pay for LTC without touching those assets. That is considered fraud—a federal crime—and the government will prosecute you! Don’t fall into that trap.

TRADITIONAL LONG-TERM CARE INSURANCE

Traditional long-term care insurance is a no-frills, standalone insurance policy. All it does is offer to pay for long-term care services when you need them. That’s it!

When does a traditional policy kick in? The policy is triggered when you can no longer perform two out of six activities of daily living (such as dressing, bathing, eating, or transferring to a wheelchair) or suffer from severe cognitive impairment. After a waiting period of 30–90 days, your benefits should start coming in.

HYBRID LIFE INSURANCE POLICIES AND LONG-TERM CARE POLICIES

Another option is a policy that combines life insurance with long-term care coverage. With a hybrid policy, you can access the death benefit—the money that your beneficiaries would receive in the event of your death—while you are still alive to pay for long-term care.

And if you end up not needing care, your heirs get the full payout. Rates are considered “non-cancellable,” which means premiums are fixed for life.

But brace yourselves—the price tag for a hybrid policy is usually thousands of dollars more expensive than a traditional policy. That’s because you’re also buying life insurance you might not even need along with LTC coverage. And unlike traditional long-term care insurance, the premiums for hybrid policies are not tax-deductible.

Similar to whole life insurance, insurance companies invest the money in your hybrid policy. The problem is they’re not making good investments and your returns will probably barely keep pace with inflation. Those lost earnings could end up making hybrids the most expensive long-term care policy of all.

That’s why hybrid policies should generally be a last resort. The only time you might consider buying one is if you can’t qualify for a traditional long-term care insurance policy due to medical underwriting. Other than that, buy long-term care insurance and life insurance separately—don’t try to marry the two!

WHEN SHOULD YOU BUY LTC INSURANCE

Okay, Dave suggests waiting until age 60 to buy long-term care insurance because the likelihood of you filing a claim before then is slim. So you’ll want to buy a long-term care policy as a 60th birthday present to yourself! Statistically, 95% of LTC claims are filed for people over age 70.

You may assume that you’ll pay less if you buy your policy at age 50 and lock in a lower monthly premium instead of waiting until age 60. But Dave will never tell you to buy something based on how much the monthly payment is. That’s what broke people do, right? It’s about what you need when you need it.

IT MATTERS WHEN YOU BUY YOUR POLICY

While it might seem cheaper to buy LTC at age 50, the numbers tell a different story.

An estimated LTC premium for a healthy 50-year-old man is $1,657 per year. If the policy remains in effect until this person is 95, he can spend approximately $74,565 in LTC premiums. For a healthy 60-year-old man, an estimated premium is $1,811. If he keeps the policy until he’s 95, it can cost him $63,385 overall.

You can already see how buying at age 60 is a better deal! But what would happen if, instead of buying LTC at age 50, you invest that $1,657 each year until age 60? You could have roughly $30,000! If you keep that money invested until age 95 and never add anything to it, you could potentially have over $1.3 million! That’s not too shabby!

Many people worry that if they wait until age 60 to buy LTC, they’ll develop a medical condition that will either prevent them from qualifying for coverage or significantly raise their premiums. If you have a family history of illness at a young age, or you are losing sleep because you’re worried about getting sick and not being able to afford care, then buy LTC when you can afford it. The peace of mind is worth more than any cash you’ll save on premiums. Just don’t buy LTC at a young age because you think you’ll save money by doing it.

As you can see above, that’s just not true.

WORK WITH AN INDEPENDENT INSURANCE AGENT/BROKER

OK, what’s the best way to find long-term care insurance? Go to an independent insurance agent. They’ll shop among several different insurance companies to find you the best price based on your particular location, situation, age, health and other factors. Long-term care is an important decision, so make sure you get a professional on your side!

A LITTLE-KNOWN FACT THAT COULD MEAN A LOT LATER

Initially, the cost for women was less than for men for a LTC policy. However, the Insurance companies began to notice that married women were the main caretakers for their husbands, and thus they outlived the husbands most often and usually by many years. They also saw that due to the wives being the primary caretakers, the men spent significantly less time in Long Term Care Facilities because they were cared for at home. But, after they were gone, their wives tended to spend more time in a Long Term Care Facility due to the fact that no one was left to take care of them.

This is sad and I wish children and grandchildren of aging parents understood the importance of repaying the debt our parents undertook when they cared and nurtured us from birth until we left home. It can be difficult, but it is worth having family discussions so our parents will never feel unwanted or forgotten, it really is the least we can do. I know many times parents retire to warmer areas so they can enjoy their retirement years, but having a long term plan for their parents is something all children should want.

The last thing I want to leave you with is to consider one of the many Riders offered for LTC Policies. (A rider can add valuable benefits, but you must determine which riders are worth the extra cost. Some riders add to the cost without a corresponding increase in benefits). You can purchase various Add-ons or Supplements to your Long Term Care Policy if you know what to look for. Here are what we at Braden MSI Insurance Services believe are the top 2 Riders for any LTC Policy.just a few things we believe everyone should consider.

SPOUSAL BENEFIT RIDER

We believe that the Spousal Benefit Rider is one of the "most significant riders" is the spousal benefit rider.

"This enables each spouse to tap the other's pool of benefits. As a result, each individual could purchase, say, a three-year plan of protection, which would be significantly less expensive than a five-year benefit."

Adding a spousal rider to your long-term care insurance policy might increase the cost by about 15 percent, but it would give both policyholders access to five or six years of benefits.

INFLATION RIDER

No matter which long-term care policy you buy, everyone should buy an Inflation Rider. This option is important and valuable. These riders help ensure that your long-term care insurance benefits keep pace with the escalating cost of health care.

Generally two riders are offered, one that covers inflation up to 3% annually, this is the more affordable and this more popular rider chosen. However, a Compound Rider that automatically increases by 5% will double the initial daily benefit every 14 years. So, as an example, if you purchased a policy at age 60 with a $100 per day benefit, that daily benefit would be $200 per day when you are 74 in comparison to $154 per day if you chose the 3% Inflation Rider.

Because this coverage is so important, insurance regulators in many states require any purchaser of a long-term care policy to specifically reject the inflation rider if they don't want it.

Nearly all long-term care insurance policies have some form of home health care included in a basic LTC policy.

The most common long-term care policies are those termed "tax-qualified." That means they follow certain consumer-protection guidelines set by the National Association of Insurance Commissioners and the Health Insurance Portability and Accountability Act (HIPAA). That also means, that when you use a benefit, it is not considered taxable income.

In the past, some insurers offered home health care as a rider. Now, all tax-qualified basic long-term care insurance policies cover some home health care. If you are among those rare few with a non-tax-qualified policy, ask your insurance agent if you have home health care coverage.