 Myths Debunked
There is some truly terrible advice floating around concerning Long Term Care
Insurance. Since Long Term Care is a looming national crisis, it is critical that people fully understand the facts.
- Social Security
Beyond 90 days of institutionalized care, there is nothing.
- No Home Care
All major company plans today provide coverage for home care as well as institutional care.
- Buy When You Are Older
Terrible advice. When you are older, say 65, the rates will be much higher, and worse,
you may not qualify due to acquired health conditions.
- Use Family Care
Sure. Only if you want your children or siblings to be caring for you 24 x 7. This is NOT on most peoples' wish list,
to become a burden to their children.
- Walking
Walking is NOT an official ADL, Activity of Daily Living. Covering those who cannot walk is NOT the intention of
Long Term Care insurance.
- Increasing Rates
It is true that over time, it is possible that rates will increase, but only if the whole product class is approved by
each state for the increase. New Laws are safeguarding against unreasonable rate hikes.
- Not Enough Money
The claim that by the time you need it, it won't cover all the expenses does have some merit, maybe. If you buy young
and do not take an inflation rider, then actual benefits could be less than full coverage. There are ways to protect
against this happening.
- Don't Buy Until You Need It
Dumb. If you wait until you need it, you won't be qualified.
- Don't Buy If Your Assets exceed...
There is a point where you might be able to self insure. Keep in mind however, that today, the average cost for long
term care is running at $65,000 per year in NH.; It is going to get much higher over time. If your assets are sufficient
to spin off that amount of money for four or more years, without destroying your estate or survivors' quality of life,
then maybe, this advice would work for you. Think about it very carefully.
- The Government will come up with a plan
The Fed has sent a clear signal by making LTC plans Tax Qualified. The message is, take care of it yourselves.
The cost would be staggering. Government sponsored LTC will happen when the income tax rate hits 70%, (Like in Sweden)
Styles of Plans
- Defined Benefit
A certain amount paid per day while Long Term Care is delivered.
- Pool of Money
Pays actual costs up to a predetermined daily or monthly maximum.
If actual costs are below the maximum, then the coverage period is naturally extended.
- Return of Premium (ROP)
Some plans are offering a Return of Premium if at a certain time, the policy has never been used, or
there is a positive balance in the plan benefit. This comes at a cost however, for the rider.
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OVERVIEW
Less than 7% of Americans over the age of 45 have made any financial preparations for the very high probability that they will need long term care
at some time in their lives. Middle income Americans will either see their nest eggs gobbled up by costs, or will become a financial and/or time burden to their children. Four years of long term care at just today's rates will eat up over a quarter of a million dollars.
Some states are costing even more. In Massachusetts (2007) rates will
range from $96,000 to $120,000 per year! Whether it is institutional care or home care,
(NH) costs are running at well over $65,000 per year today and are expected to triple by 2020. A married couple with total assets between $300,000 to $3,000,000 has a worse than 50/50 chance that long term care for one or both of them will devour a lifetime's worth of savings.
What is even more insidious, is that improvements in health care are actually increasing the odds of needing long term care because people are now surviving in a debilitated state what used to be a terminal event.
Any retirement plan or family trust arrangement without provisions for long term care is both short sighted and incomplete. What follows is an explanation of various aspects of long term care planning as well as a variety of strategies that will hopefully match your individual situation.
Strategies
- Controlling Premium Costs
The biggest mistake people make when looking at LTC quotes, is assuming they have but one choice; buy a plan
that covers all the expenses. Not so. If you feel your assets are sufficient to reasonably pay a certain amount on a daily basis, then
reduce the LTC benefit which will slash the level of premium.
For example, assume that the daily cost is approaching $200 but you are sure you could handle $100 per day or $36,000 per year.
Then purchase a LTC plan with a $100 daily benefit and add an inflation rider to cover future cost of care increases.
- On the Dole:
The most common planning mistake being made today is the gross misunderstanding that the costs of long term care will be covered by Medicare. They will not. Medicare will cover no more than 90 days of institutional care, or in other words, a recuperation period from some ailment. Long Term care is NOT part of Medicare, and is not likely to ever be.
On the other hand, each state is providing long term care to its citizens who are qualified for the state
Medicaid program. Qualification, in New Hampshire at least, means the surviving spouse may keep the house, a car, and no more than $76,000. For a single person, total assets may not be more than $2,500.
Simply stated, you have to be broke.
- One in - one out:
The cruelest cut of all is when one party requires either institutional care, or continuous home care and the family assets are spent down until the surviving spouse is driven to the barest minimum of quality of life. They may be healthy, but their long term
financial survival is in an inverse free fall as the family assets are consumed by the cost of
spousal care. -
What about the kids?:
Parent care, or Elder care, as it is called today, is becoming an increasing burden to many people in their 40s and up, as they wrestle with the dual challenges of raising a family while caring for needy parents. Without a financial vehicle in place, one partner may be faced with either quitting their job or working only part time so they can administer care to one or more of the couples' four parents.
The financial burden, not to mention the emotional stress takes a heavy toll on the family. It is no surprise then that the leading demographic for people purchasing LTC insurance are the very same folks who have or are currently involved in caring for their parents.
What Can You Do?
- What is your financial condition?:
As stated earlier, if your total assets are between $300K to $3M, you really need to consider purchasing long term care insurance. The younger and healthier you are when you do it, the less it will cost. Do not wait until your health condition is such that you are either rated up or declined all together. Make sure you purchase a reasonable daily benefit amount and that your policy contains an inflation rider. You want your benefit amount to keep pace with the increase in costs.
A caveat to the above statement is that even if your assets exceed $3M, you still might be at great risk by self-insuring. If those assets are critical to your retirement income, then the additional expense of long term care could still have a disastrous impact on the surviving spouse.
If you are below the spread, you may rely on the state to provide care if needed although that is not necessarily a happy prospect. At the very best, you may not have much of a choice where you land as long term care providers are only allocating a portion of their space to
Medicaid recipients.
If you are above the spread, you might be able to self-fund the cost of care, although that may still be an unnecessary drain of family wealth. In cases such as these, there are instruments that can protect assets and cover the cost of care if needed.
- Features That Matter:
Make sure your plan offers an inflation rider. These are usually either compounded or simple. If you are buying the plan while still young, opt for the compounded version. If you are already into
your pension or 401K, then simple interest may make more sense.
Pay attention to "Triggers", typically described as the inability to perform a certain number of ADLs (Activities of Daily Living) These include items such as bathing, dressing, eating, medicating, and cognitive impairment. Most plans will take effect when the owner cannot perform some number of ADLs.
Make sure the plan you choose lists cognitive impairment as an automatic
trigger.
Your plan should cover institutional care and home care.
Other important features include "Respite Care", the provision for professional home care while the family care provider takes a vacation break. Another is covered absence so that a slot is held when an institutionalized person is out for an extended period of time either with the family or perhaps in the hospital.
Make sure you have a restart option so that someone who requires long term care, but later recuperates and returns to a normal life still has coverage for a subsequent need for long term care.
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