Is it time to buy long-term care insurance?

According to AARP, which cites data from the US Department of Health and Human Services, about 70 percent of Americans over the age of 65 will need long-term care in their remaining years. AARP notes that along with aging, the possibility of physical or cognitive deterioration increases. Family and friends may not be able to provide adequate care, and it is estimated that more than a third of the aging population will need to pay for the care of trained health care professionals.

Long-term care insurance (LTCI) is one way to deal with this costly possibility.

Consumer advocate Clark Howard notes on his website that long-term care for women averages 3.7 years and 2.2 years for men. Without long-term care insurance, a family can deplete all of its financial resources to provide for themselves or elderly relatives.

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Gail Raab, owner and broker of Insurance Depot, has been advising families on LTCI options for decades. She tells the following story:

I sold a shared long-term care policy to a couple in their 50s. The wife was athletic, in good health, and she did not feel she needed long-term health care coverage. She wanted it for her husband who was seven years her senior, but I explained that she could buy a policy where she and her husband could share the total benefits. If one spouse needs more than 50% of the policy, the other spouses’ share of the policy may be used. Eventually she accepted and purchased the shared LTCI policy. In the first year, her wife had a serious illness that put her in intensive care for a month, in the hospital for another few weeks, and she needed a year of physical therapy and rehabilitation. During this time, she was unable to take care of herself and needed long-term care. She thanked me over and over again for getting her to buy the shared policy, thus saving their retirement funds.

While regular life insurance will pay out the nominal amount of a policy to beneficiaries after one’s death, it does not alleviate the financial burden of a physical or mental illness while the policyholder is still alive. LTCI, while expensive, fills that need and can be applied at home or in an assisted living facility or nursing home where the caregiver works in addition to the facility’s regular staff.

LTCI is customized to an individual’s desires and wealth. Options can include any daily allowance the buyer selects, starting at $100 per day or $3,000 per month. Other options include the waiting period or number of days before benefits start, including 30, 60, 90, or 180 days; the zero wait period for home health care that begins on the first day long-term care is needed, after which the days used for home care can be used to meet the waiting period in a facility; the number of years the policy will continue to provide benefits, including two to ten years or lifetime; and the inflationary factor of compound interest rates of 3% or 5% simple interest; or no inflation pilot. In addition, couples have the option of receiving separate benefits or shared benefits, so they can take money from each other if needed for long-term care. In general, premiums are not guaranteed and can increase, and the many options affect the cost of the policy.

Medical care for an illness or injury is covered by health insurance policies, Medicare, or Medicare supplements. LTCI, however, only pays healthcare professionals and does not provide any treatment. A long-term care policyholder becomes eligible for benefits when they are unable to perform at least two forms of self-care, such as dressing, eating, bathing, moving in and out of bed, and moving independently. Cognitive impairment automatically qualifies a policyholder for long-term care benefits.

Is long-term care advisable for everyone? Sheldon Berch, an insurance broker for Siegel Insurance, suggests that it’s not imperative that the very wealthy who have sizable insurance policies leave to heirs and still be able to afford skilled care without LTCI. He adds that LTCI is not for the poor who can’t afford LTCI premiums. Georgia’s Medicaid Community Assisted Services program operates under the Aged and Disabled Waiver to help frail older adults stay in their homes or communities and receive services there as an alternative to nursing homes. Those who fall between the two extremes of rich and poor are strongly encouraged to buy LTCI.

Because LTCI is expensive and premiums rise periodically, the decision about when to buy isn’t fixed. Raab believes the best age to purchase long-term care is between 50 and 60. Howard and Berch agree. Berch says this age group often looks to their aging parents, who are in their 70s or 80s and who often don’t have LTCI. The younger group wants to plan for future needs without becoming a financial burden on their children. If purchased at an older age, in the late 60s and 70s, the premiums are much higher even though it is likely that fewer years would be required.

Applicants with serious health problems, such as diabetes, cancer, kidney or heart disease, may be denied LTCI or may be accepted for coverage at higher premiums.

Raab mentions a new long-term care product that Howard calls a hybrid policy. For a total lump sum, an individual can purchase a paid life insurance policy with long-term care benefits. For example, the individual may invest $100,000 with no further premiums and the proceeds will be paid to the insured’s beneficiaries upon her death. If the policyholder needs long-term care, the entire $100,000 can be used for caregivers, leaving no money with the beneficiaries.

However, the insurance company provides another sum corresponding to the nominal amount of the original life insurance policy, to be used if necessary for further long-term care. In this example, the sum would be another $100,000. This insurance product is available to older policyholders in their late 70s who can afford to put a large lump sum into this special insurance plan.

Howard praises the hybrid policy that combines life insurance with long-term care, pointing out that the policyholder gets long-term care coverage along with designated heir life insurance if LTCI is not used. If only a portion of the life insurance is used for long-term care, the balance of the life insurance goes to the beneficiaries upon the death of the policyholder. Hybrid policies replace traditional long-term care policies for the elderly, whose premiums would be prohibitively expensive and would have hikes. It is worth noting that premiums are not required when the insured receives benefits following a claim.

Raab suggests another option. Long-term care policyholders can buy LTCI with benefits that will increase with inflation over the years and wait on them when needed. Gives an example: If a policy is purchased with an annual compound inflation increase of 3% with an initial monthly benefit of $3,750 ($125 per day), that monthly benefit the second year will increase to $3,863, then $3,979 the second year. third year and up to $4,893 in year ten. The inflation factor and the number of years to add to the benefits (20 years or lifetime) are determined at the time the policy is purchased.

Raab shares this caveat: Long-term care policies are indeed worth gold and can prevent financial ruin. A friend’s affluent parents, who lived in an assisted living facility, both developed dementia that required around-the-clock care at the same time. Because they didn’t have long-term care coverage, the exorbitant expenses were paid out of pocket. Both parents have needed care for almost four years. After one parent died, the other parent needed care for another three years. My friend and her siblings have seen their legacy disappear.

The cost of long-term care insurance depends on your age, health status, gender, amount of coverage, how long you wait before starting treatment, and marital status.

Howard candidly states on his website: Getting old is a part of life. At some point, most of us will need treatment. Maybe in a nursing home. Assisted living. Qualified care in our homes. Are you prepared?

Berch adds this solemn advice: Don’t become a financial burden on your children. Do your financial planning now!

Raab is practical about long-term care insurance. When it comes to insurance, something is always better than nothing!