The BIG 3 of Long Term Care

February 08, 2019

You can put it off and hope it won’t affect you.

And maybe it won’t.

But statistics say you’re probably going to need it.

I’m talking about … ‘cue the blaring trumpets … long-term care insurance.

First, contrary to popular opinion, long-term care IS NOT:

An extended stay in the hospital
Rehabilitation after a car accident or stroke
A stay in a memory-care facility
A three-week all-inclusive stint at the Four Seasons hotel in the Bahamas

Long-term care isn’t something that fixes or rehabilitates you.

The questions you might have then are:

What exactly is it?
And, under what circumstances might I need it?

Long-term care (LTC) pays for the help you receive when you can’t perform everyday tasks like:

Cooking
Bathing
Driving
Grocery shopping
Remembering when to take your medication

Now, consider that 70% of people who reach age 65 will require LTC at some point in their life. ^[1]

And it just makes sense to know what your options are.

With that in mind, here are The BIG 3 of LTC.

1) While you might never need LTC, you still need a plan.

An average LTC policy will run you about $2,700 a year. ^[2]

While that’s certainly not free, for some people, it’s affordable.

And yet, if you pay $2,700 a year for 30 years, and you don’t use it, you’ll have forked over $80,000 just for LTC insurance premiums for yourself (this excludes your spouse or partner).

And yet when you consider the average retiree will spend $140,000 on long-term care, you begin to see it’s something you need to plan for. ^[3]

As it pertains to paying for nearly every aspect of retirement healthcare, from hospitalization to wellness checkups, a lot of people just think “Medicare” and forget it.

But besides the basics, when it comes to longer, day-to-day care, Medicare only covers short-term stays in skilled nursing facilities, and not the day-in-and-day-out brand of home LTC you’re likely to need.

One option—if you’re fortunate, you stay healthy, and you’ve been a good saver—is to forgo LTC insurance and “self-insure” and pay for the expenses out of pocket.

That’s risky because you could need part-time or full-time LTC for several years.

Another option, if you’re enrolled in a high-deductible health insurance plan, is to invest in a tax-friendly Health Savings Account. (Here’s a nuts and bolts primer of the pros and cons of those versatile healthcare investment vehicles.)

Contribution limits for HSAs are $3,500 for singles filers and $7,000 for families. They’re a triple-threat outlier of modern taxation in that the money is contributed pre-tax, it actually grows tax-free, and, so long as you use the money for qualified medical expenses, the withdrawals are also tax-free.

My experience has been that many people delay getting LTC coverage because they feel overwhelmed and don’t know where to begin.

But delays in finding coverage can end up costing you even more money down the road (see below).

Start by meeting with a credentialed, fee-based advisor who will help you devise a plan of action that you can afford, and which protects your long-term interests.

2) Who provides long-term care?

Long-term care policies are still offered by some large insurance companies.

The issue is, that as interest rates remained low over the last several years, many companies elected to either get out of the LTC insurance business altogether, or the cost of their premiums skyrocketed.

When it comes to LTC insurance, the questions you’ll want answered are:

How do I qualify?
What are the premiums?
Which company offers me the most security and flexibility?
What type of policy is best for me?

Remember, you aren’t necessarily limited to purchasing LTC insurance directly from a large company.

Policies can also be found via:

An employee policy through your work
Policies offered through your spouse’s employer
An association policy via a union or club

But if you decide to research a large, well-known insurer to weigh the costs of private coverage, and you aren’t sure where to begin?

The good news is that, more than many other sectors, there are numerous websites devoted to consumer protection and the insurance industry.

3) When should you purchase a policy?

In a perfect world, you’ll never need long-term care insurance.

But then there’s reality.

And because almost three out of every four people will require LTC at some point, typically, the sooner you secure a policy, the better. ^[4]

As a guideline, it’s a pretty good idea to begin the process in your mid-50s.

That’s because you want to “lock” in the lower cost of a policy while you’re in good health.

Here are the percentages of people who apply and qualify for long-term care insurance based on age:

62% of people ages 40-49 qualify
46% of people ages 50-59 qualify
38% of people ages 60-69 qualify ^[5]

Obviously, having an existing health condition, taking certain medications, and having reached a more advanced age, all make it more difficult (and expensive) to get approved.

Conclusion

Buying long-term care insurance is not a no brainer, but having a plan is.

It’s always better to be prepared and not need it, than to need it and not be prepared.

While we don’t sell insurance, we are licensed to so that we can make informed insurance recommendations as part of an overall financial plan. And that means that if you aren’t completely certain what to do, you should contact us today.

[1] https://www.ltcfeds.com/start/aboutltc_whatis.html

[2] https://www.aarp.org/caregiving/financial-legal/info-2018/long-term-care-insurance-fd.html

[3] http://www.aaltci.org/long-term-care-insurance/learning-center/best-age-to-buy-long-term-care-insurance.php

[4] https://www.aarp.org/caregiving/financial-legal/info-2018/long-term-care-insurance-fd.html

[5] https://www.kiplinger.com/article/retirement/T036-C000-S004-4-secrets-to-buying-long-term-care-insurance.html

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