One of the most common things we do for our retired clients is to help them anticipate their long term care planning needs. We believe that a good long term care strategy consists of two parts:
The long term care plan. Simply put, this is the strategy of what you envision the care to look like. Will you depend on relatives to provide care? Will you stay in your home when you can no longer care for yourself? Are you interested in a continuing care community that can provide all levels of lifetime care? Who will be responsible for paying my bills when I no longer can handle my affairs? A solid long term care plan will address these questions.
A sound plan on how to pay for the care. A good plan is meaningless if you can’t execute it. And regardless of what the plan looks like, you can count on one thing: It will be expensive. Even if you plan to have friends and family helping you for free, it will cost them money if someone has to take time out of a job to provide care. With that in mind, you also need a plan to address how you plan to obtain that care.
With that in mind, there are many options to consider. A good long-term care insurance policy is simply part of the answer to the question: “How can I afford long term care?” Long term care insurance (like everything else related to long term care) is not cheap, and it’s not for everyone. And the difference between a good policy and a bad policy is hidden in the details.
Although we are not licensed insurance agents, and we do not sell insurance products, we do help educate our clients on how their long term care insurance (or lack of it) might impact their finances. Below are seven things we help our clients evaluate when they’re shopping for long term care insurance.
Insurance Company Rating
The ‘best’ policy ever written is absolutely meaningless if the company that wrote the policy is no longer around when you need it. The insurance brokers we refer clients to only work with insurance companies that have solid finances that are strongly rated by independent ratings agencies such as Moody’s and Standard & Poor’s.
When shopping for long term care insurance, you should have a good idea of what your benefit amount should look like. This amount should be associated with what you can expect to pay for long term care in your area, or the area where you expect to live when you will need long term care.
Usually, a long term care policy will provide for a maximum daily (or monthly limit), with a maximum annual limit, for a certain number of years. The policyholder will have to decide:
In the Tampa area, for example, we currently estimate that long term care costs would be about $66,000 per year (or about $180 per day). We suggest our clients try to get a policy for at least 4 years, but even a 3 year policy can mitigate the impact to their savings if they cannot afford 4 years of coverage.
We usually start talking about long term care when our clients are in their fifties or early sixties. Even though most people need to take some time to make the decision, this is about the age when they’ll buy a policy. They do this with the understanding that:
If they wait, a medical condition might come up that would prevent them from getting coverage, or limit the amount of coverage they can get.
Even if they can get coverage, it will be more expensive—especially for women (unfortunately).
Because our clients might buy a long term care insurance policy that they won’t use for 10, 15, or 20+ years, it’s important that their policy keeps up with inflation. At 3% inflation, a policy that pays a $180 daily benefit today would only be worth about $100 per day (in today’s dollars) 20 years from now. And long term care costs are going up faster than 3% per year.
Inflation riders are expensive, but they are the number one ‘option’ that we look at.
In a long term care insurance policy, the elimination period is similar to the deductible that you would see in a homeowner’s insurance policy. The difference is that instead of paying a deductible, you simply wait a pre-determined period of time before you start to receive benefits. Elimination periods can range from 30, 60, or 90 days to as much as 1 year. The longer the elimination period, the lower the deductible.
While we help our clients plan for this, our primary concern is ensuring they have enough financial stability to make it through a longer elimination period. For example, if the client believed that the best option was a policy with a 180 day elimination period, we would help them ensure that they are able to pay for the first six months of care.
Sometimes, there is a discount on the policy premium for being married or having a partner. While most policies provide a maximum discount for both partners applying, there are policies that provide a discount for simply having a live-in partner. In many cases, that partner does not need to be a spouse, simply someone who shares the residence as a partner.
We usually recommend that both partners obtain their own long term care insurance policy. However, since not everyone who applies for long term care insurance qualifies, we believe it’s important to look at policies that offer a partner discount.
For couples who both qualify for a policy, and are willing to get one, we look for shared benefits (also known as shared care). This allows a couple to ‘pool’ their coverage together, so that each partner has access to the other partner’s benefits.
This feature is especially important for people who might be at risk for dementia or Alzheimer’s disease. According to the Mayo Clinic, people with Alzheimer’s disease usually live between three and 11 years after diagnosis. Having shared benefits can help the supporting spouse provide care to their loved one for a longer period of time than an individual policy would allow.
Home Health Care
According to the Department of Health and Human Services, approximately 2/3 of people who need long term care use services provided in their home, instead of a facility. While home health care might be less expensive than some nursing facilities, it will be expensive.
Sometimes a long term care policy will have different benefit amounts for facility care and for home health care. Recognizing that home health care could be as expensive as limited care provided in a facility, we believe that a policy should provide the same daily benefits for home health or facility care. So we help our clients ensure their policies state just that.
Planning for long term care can be a daunting task. After all, there are many emotional components to making the choices for that stage in your life. However, you don’t have to make all of those decisions at one time. Simply looking into long term care insurance costs can be a huge step towards putting together the plan that works for your family.
If you need help trying to put all the pieces together, you should talk with your financial advisor. If you don’t have one, or if they’re not able to help you, please contact us at Lawrence Financial Planning. We would be more than happy to schedule a complimentary phone call to see how we might be of service to you.
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