Long Term-Care Insurance
INCAPACITY PLANNING WITH LONG TERM CARE INSURANCE
Health Care Knowledge is Power
A personal experience motivates many of those that have purchased Long Term Care Insurance. They've seen a loved one or close friend spend everything on care. This quickly brings people to the realization that becoming incapacitated due to an injury or illness will put most families into a financial tailspin.
Whether incapacity strikes suddenly, as with an accident or acute illness, or gradually, as with Alzheimer’s, the emotional and financial consequences are the same. In fact financial advisors are making a point of talking with clients about preparing for unforeseen events in retirement, and these days the challenges are likely to revolve around health care.
People that have seen the need for care first hand, become especially worried about what the cost of a full time caregiver at home or a long stay in a nursing home would do to their own retirement budget. Long term care is extremely expensive. A year in a Nursing Home is estimated to cost an average of $90,000. A full time live-in care giver at home, at a minimum of $ 275 per day, can exceed a cost of $100,000 per year.
Those who haven't personally experienced or had to watch life savings disappear paying for long term care think that Long Term Care insurance is expensive. The truth is that it's not cheap but still pennies on the dollar compared to the out-of-pocket cost of long term care.
Why Should Someone Your Age Need to Think About Long Term Care?
It is suggested that you either set aside an average of $250,000 for care ($ 500,000/couple) or protect yourself with a Long Term Care policy.
The following questions can help you determine whether you may need the protection provided by Long Term Care insurance:
- Can you afford to use your savings or retirement income to pay for long term care at $150-$300 per day?
- Do you have assets excluding your home that are at risk?
- Has anyone in your family ever needed long term care?
- Would taking care of you be an emotional or physical hardship for your spouse/partner or children?
- If your spouse/partner needed long term care, would you be able to provide it now and when you are older?
- Would the people caring for you be able to maintain the quality of their own lives?
- Are you concerned with being able to afford long term care?
Am I Too Old or Too Young For Long Term Care Insurance?
The U.S. Government Accounting Office and The Wall St. Journal recently reported that as many as 60% of all Americans will require some long term care because we're living longer which makes needing long term care more likely.
Often what prevents people from insuring against the high cost of long term care is the cost of the premium.
Even though the younger you are the cheaper Long Term Care Insurance is, if you are older and can health qualify then long term care insurance will still be pennies on the dollar less than paying yourself.
If you are younger and your comprehensive policy costs $2,000/yr, and you paid for 30 years, that's $60,000.
If you are older and your comprehensive policy costs $5,000/yr, and you paid for 12 years, that's $60,000.
If you paid for care yourself $60,000 would only cover about 9 months of care at today's rate!
People who balk at paying $2,000-$5,000 a year for insurance are risking having to pay $5,000-$9,000 a month for care .
What if you needed 4 years of care? Where would the $ 300,000+ come from?
Long Term Care Solutions
The odds are that at some point in your life, you’ll need long term care. Long term care is defined as sub-acute care that is required because an individual has a prolonged illness or injury and needs help from others in order to live. One may need assistance in order to perform two or more activities of daily living (bathing, continence, dressing, eating, toileting or transferring), and/or one may need supervision due to cognitive impairment. Unlike other types of health insurance, LTCI covers the costs of care in any home or facility by a professional caregiver.
The key to proper long term care planning is to plan now rather than react later when your options are limited.
There are numerous insurance strategies designed to help preserve your assets and you retirement income.
Traditional Long Term Care Insurance Policy
A standard Long-Term Care Insurance policy can be designed to fit most anyone’s budget. Similar to other types of insurance, you will pay a premium for a predetermined amount of long term care benefits.
This predetermined amount of benefits is called a “Pool of Money” and it is calculated by selecting a “Benefit Amount” and a “Benefit Period”.
For example, if you want a policy that covers $ 6,000 per month of home care or assisted living, and you want there to be enough money in the plan to cover about 10 years of care, your policy would have a “Pool of Money” of $ 720,000 ($6,000/month Benefit Amount x 10 year Benefit Period = $ 720,000 Pool of Money)
This type of policy pays benefits for as long as dollars remain available in your pool. Let’s say you used only 5,000 per month for care at home. Your policy would then last for 12 years.
A 55 year old, married and in good health, would expect to pay $ 155 per month for this policy.
Inflation Protection
Today, leading insurers offer a variety of options to deal with future increases in the cost of care.
A Guaranteed Purchase Option Rider allows you to purchase additional coverage periodically without having to meet future health requirements.
CPI Inflation Coverage adjusts your policy limits on a compounded basis, according to increases in the Consumer Price Index (CPI).
5% Simple Inflation Protection increases your benefits by 5% of the original amount every year.
5% Compound Inflation Protection increases your benefits by 5% compounded annually.
An individual that can contribute to the cost of his or her own care may decide against purchasing an inflation rider. This individual would be self insured for increasing care costs.
Alternative Long Term Care Planning Solutions
A popular alternative to a standard Long Term Care Insurance policy is a combination Life Insurance Policy or Annuity with a Long Term Care rider. These types of policies are referred to as “hybrid” or linked policies. They are tailored to meet the concern about paying premiums for a long term care event that may never occur.
These combination policies have gained popularity because:
- Home Care, Assisted Living, Skilled Nursing Benefits
- Unused long term care benefits go to heirs in the form of a death benefit
- Premiums are guaranteed
Policy details for a mid range policy that covers both spouses, age 55 |
|
Total long term care benefit |
$300,000 |
Monthly benefit for home care, assisted living, nursing home, Alzheimers |
$4,500 |
Death benefit that will pass on to heirs if the long term care is not used |
$150,000 |
Total monthly premium includes both spouses (guaranteed not to increase) |
$284 |
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