Long-Term Care Insurance

Michael T. Braden, August 29, 2024 LONG-TERM CARE INSURANCE

Braden Medicare Insurances Long Term Care Insurance Poster

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 unable to live on their own. But if you want to make a sound financial decision and protect your nest egg, long-term care insurance is essential!

To illustrate this, consider Steve and Rachel. They weren’t always prudent with money, but they worked hard and built 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 for a few hours each day. But as his condition worsened, Steve had to go into a nursing home. Sadly, after five years in the house, 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 covers long-term care (LTC) services that some people will need as they age or become ill and require help with daily tasks such as getting dressed, bathing, and more.

And long-term care can get expensive— expensive.  According to the Alzheimer’s Association, the estimated cost of end-of-life care in 2019 ranged from $233,000 to $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 shops among several long-term care companies and provides quotes can save you thousands of dollars and unnecessary worry.

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 genuinely 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 parents’ 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 30–90 day waiting period, your benefits should begin.

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.

If you do not need care, your heirs receive 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, which you might not even need, along with LTC  coverage. Unlike traditional long-term care insurance, 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 sound investments, and your returns will likely barely keep pace with inflation. Those lost earnings could make hybrids the most expensive long-term care policies 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, purchase 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 that you will file a claim before then is slim. 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 you’ll pay less if you buy your policy at age 50 and lock in a lower monthly premium, rather than waiting until age 60. But Dave will never tell you to buy something based on the monthly payment. 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 could cost him $63,385 in total.

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 to it, you could 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 could prevent them from qualifying for coverage or significantly increase 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. Do not buy LTC at a young age because you think you’ll save money by doing so.

As shown above, that’s 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 a significant decision, so make sure you have 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 an LTC policy.  However, insurance companies began to notice that married women were the primary caregivers for their husbands, and thus they outlived their husbands most often, often by many years.  They also found that, because the wives were the primary caretakers, the men spent significantly less time in long-term care facilities, as they were cared for at home.  But after they were gone, their wives tended to spend more time in a long-term care facility because no one was left to care for 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 never feel unwanted or forgotten. It really is the least we can do. I know many parents retire to warmer areas to 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 price 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.

"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 essential 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, which is the more affordable and more popular option.  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 essential, insurance regulators in many states require that any purchaser of a long-term care policy explicitly 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.

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The most common long-term care policies are classified as "tax-qualified."  That means they follow 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. All tax-qualified basic long-term care insurance policies now 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.