Anyone who has cared for aging parents or grandparents understands the financial, emotional, and mental toll this process takes. It is painful - and exhausting - to care for loved ones as they deteriorate mentally and physically, requiring additional care never before needed. This level of attention often requires significant lifestyle changes for the caregiver(s). Adult children might move to the same city as their aging parents in order to provide more consistent care. Some alternate weekends with siblings or pay out-of-pocket for in-home services.
At some point, everyone begins to wonder how they will be taken care of in their old age. We ask questions like, "What sort of care will I need?" "Who will provide that care?" and "How will my family pay for it?"
Long-Term Care Insurance (LTC) is a valuable tool on which many rely for peace of mind, knowing late-in-life care is covered. LTC insurance reimburses you for services that improve quality of life should you become chronically ill or unable to engage in everyday activities such as eating, dressing, bathing, and/or getting in and out of bed without assistance. A comprehensive LTC insurance policy can provide coverage for long-term care needs in the home, community-based settings, an assisted living facility, or nursing home. It protects your assets from being used by providing a pool of benefits to reimburse your expenses for care. LTC helps alleviate the financial stress faced by your spouse, children, or extended family, giving you control over who cares for you and where that care takes place.
WHO NEEDS LONG-TERM CARE INSURANCE?
While not everyone who requires long-term care is elderly, the vast majority are. On average, about 1 in 3 adults over age 65 will require at least some type of long-term care during their lifetime, and approximately 35% of those will require care in a nursing facility.
Further complicating the matter is that more people are living longer lives. Individuals 85 years and older are one of the fastest growing segments of the population. In 2012, there were 5.9 million people over the age of 85 in the United States. By 2050, there will be an estimated 19.4 million, almost 14 million more than in 2012! Longevity is good, but ensuring quality of life throughout your later years is more critical than ever. Long-term care insurance is quickly becoming a necessity rather than a luxury.
Many of our clients are young and will immediately believe this topic is irrelevant to their planning for a number of years. Here's why we're bringing this up. For those of you with aging parents or relatives that have yet to plan for this specific issue, the cost will likely pass to the next generation in the family, which may be you. Those of you currently working and raising your own children are being considered the sandwich generation because it is very likely that you will be required to financially support and care for your parents while also financially supporting and caring for your own children. The combination of expenses can make it very difficult to save anything for your own retirement. Often times as physicians, many of you are the most capable of handling such an expense among those in your immediate family, hence the reason I'm bringing this up as a concern. If your parents have not planned for this inevitable need in the future, it will have a significant impact on your family and financial situation.
Though you may plan and organize your personal financial situation well, I want all of you to consider how to insulate your financial plan from another persons lack of planning. It may be wise to have a conversation with your parents about what they intend to do to address LTC needs in the future. If they have yet to consider the problem, encourage them to talk about the problem. If you anticipate the expense of the insurance will be too high given their age, health, and cash flow, it may be wise to ask if they would allow for you (possibly with other siblings) to cover the cost of such coverage as a way of eliminating the future financial risk the situation could pose to your own financial planning.
HELPFUL FACTS ABOUT LONG-TERM CARE INSURANCE
It is recommended that you begin exploring LTC insurance options in your late-40's or early-50's. The average adult experiences a greater downturn in health in their 50's as compared to their 20's, 30's, or 40's, and insurance premiums reflect this. Most LTC coverage requires a health review, so the sooner you make plans the better. Obtaining insurance while you’re healthy will cost a little less.
Most LTC policies start at a two-year coverage minimum. You may be satisfied with that, or you might want to extend it further. Lifetime coverage is rare; however, benefits could last as long as 6 years, but, obviously, costs much more. The average adult over the age of 65 requires approximately 5 years of long-term care. But remember, that number is subject to change as more people live longer lives.
Also consider that a private room in a nursing facility costs on average $250 per day, or over $90,000 per year. Assisted living costs a little less, averaging $41,000 per year. Costs for in-home care varies on the services offered and their frequency.
In other words, long-term care is expensive! It might seem unnecessary to begin paying monthly premiums for coverage when you feel healthy and work full-time. But if you wait too long, those premiums will be far greater than if you act early.
HOW CAN I MAKE LONG-TERM CARE INSURANCE MORE AFFORDABLE?
Once you decide to purchase long-term care insurance, there are a few ways to keep premiums low. Just be aware that any way you choose to lower your monthly premium will eventually cost more out of pocket:
- Shorten the benefit period: As was stated above, most plans require a 2-year minimum, though many extend that to 5 years. If you want to pay less per month before accessing the funds, keep the benefit period at the 2-year minimum or slightly above.
- Lengthen the elimination period before your policy begins: If you have enough savings to pay for long-term care services out of pocket for a period of time, you can lengthen the elimination period - extending the amount of time the insurance company waits before paying for your care - and lower your premium.
- Reduce the amount of your daily benefit: Policies that cover more expenses have a higher premium. If you can cover a share of the long-term care expenses and use insurance as a supplement, it will lower your monthly premium.
Many people opt to purchase long-term care insurance so their earnings can go toward something besides doctors and nurses and assisted living facilities. They want to preserve a financial legacy for their children and grandchildren, raising quality of life for generations to come. Long-term care insurance helps accomplish this goal, and at the same time provides security for your mental and physical care as you age. If you would like to speak with a financial advisor about long-term care insurance, click the button below.
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