Why Do You Need Long-Term Care Insurance… I Wish I Had Known About This For My Own Mom

I adored my mom.  She was blind in one eye–was the soprano soloist in our church and community choir–a terrific mom and cheerleader–and died of a horrible disease I had never heard of.  It was the same disease that killed Dudley Moore, the British actor.  Mom got progressively more unstable physically  until I convinced her to see a neurologist and get it checked out.  After many back-and-forth discussions she finally relented and went in.  Her diagnosis?  “Progressive Supranuclear Palsy.”  It carried a seven-year life expectancy . . . and mom had already used up some of that runway.

We had no insurance to help pick up the long-term care expenses my Mom’s disease began to create.  I lived in another state – my sister was unable to help – so the responsibility fell squarely on my shoulders.  But . . . what could I do?  Mom declined to leave her community to come live with my wife and I . . . but she could no longer live on the family property.  

How would I pay for the care she needed – either for in-home care or at a skilled-care facility?

Fortunately, we were able to cobble things together financially.  We also found a surprisingly affordable facility that was bright, clean and where they truly cared for my mom.  Still, it was thousands of dollars out-of-pocket, and the financial cost could have skyrocketed if my mother’s care had extended for many more years.

Here I was–a trained financial professional with many years of practice–and yet, I had never faced this with a client before . . . and was unprepared for this event in my own family.  True, this was over 19 years ago and today there is much greater knowledge in our profession about how to address this situation.  That said, so many of the clients we work with–very sophisticated clients at many different levels–are completely or largely unprepared for this situation.  Or, they are planning to self-insure the costs, not realizing they are looking at potentially $10,000/month in costs–or sometimes more.  At that rate, an estate can be consumed very quickly.

From this experience with my mom, I came to find out that our family’s story is not uncommon . . . especially as life expectancies continue to be extended.  There is a relatively simple solution available today, and it comes in several different “packages.”  Having a plan and peace of mind in spite of a long-term care event is possible . . . “Imagine That™”!

What Are the Odds?

According to the U.S. Department of Health and Human Services, approximately 70% of those turning 65 can expect to need some form of long-term care during their lives!  Will you be one of the 70% requiring care?  We don’t know for sure, but the odds are high that you and I will need long-term care at some point in our lives.  (Which is why I have coverage to pick up these costs if this occurs to either me or my wife . . . or both!)

You might be asking, “Doesn’t regular health insurance cover long-term care expenses?” 

 I wondered that myself when my mom got sick.  I was surprised to find the answer was, “No.”  Health coverage only pays when the person is convalescing and getting better, not when they are in custodial care.  Health insurance stops paying immediately as soon as doctors determine the patient is no longer getting better.  Bam!

How about Medicare? 

Will that come to the rescue?  No!

• Medicare only covers short nursing stays or limited amounts of home health care when you need skilled nursing or rehabilitation. 
• Medicare does not pay for custodial care, which includes supervision and assistance with day-to-day activities.

You can get help from Medicaid but will have to nearly exhaust all your savings before you become eligible.  Not a good strategy!

What is an Alternative?

The alternative is to purchase long-term care insurance.  Benefits are triggered when a licensed healthcare practitioner (usually a doctor) certifies you are unable to perform at least two of the six “activities of daily living” for a period expected to last at least 90 days OR you have cognitive impairment requiring substantial supervision.  

The six activities of daily living are:

• Eating
• Bathing
• Dressing
• Toileting (getting on and off the toilet)
• Transferring (getting in and out of bed, and on and off a chair)
• Continence

The price for long-term care expenses continues to increase and could pose a huge drain on your savings if you do not have long-term care insurance and/or have not adequately prepared for the costs of long-term care. The Genworth 2017 Cost of Care Survey listed the national annual cost for the following common services:

• $18,204 for adult health care
• $45,000 for an assisted living facility
• $49,188 for home health care
• $85,776/$97,452 for a semi-private/private room in a nursing home

Long-Term Care Insurance Benefits

The expenses associated with long-term care go beyond medical and nursing care.  It includes all the assistance you need if you ever have an illness or disability that leaves you unable to care for yourself for an extended period of time.  Long-term care insurance will pay long-term services and support, including personal and custodial care, in settings such as your home, a community organization, or other facility.

According to Todd Stein, national long-term care specialist at xACSIA Partners Insurance Agency LLC, “The greatest benefit of long-term care insurance is protecting those you love from the physical or financial responsibilities of caregiving.  My clients who have this coverage tell me it provides them peace of mind, so they can move forward in retirement.  They are free to spend their money however they choose and not have to worry about covering costs in the very likely event they will require long-term care.”

What to Consider When Shopping for Long-Term Care Insurance:

Long-term care insurance is a difficult type of insurance to buy because it requires a cost-benefit analysis in many different areas and requires assumptions about future events that are tough to accurately predict.  Here are eight aspects you should consider when looking to obtain long-term care coverage:

• Type of Contract—There are two primary types of long-term care coverage:
  1. Traditional model: It works just like car insurance. You pay your premium and receive coverage.  These are finite pools of money for a potential future long-term care event.  Benefits can run out, premiums are not fixed or guaranteed, and you must pay premiums until you die or go on claim
  2. Asset-based hybrid model: These are long-term care plans built on a life insurance platform. You’ll use the base benefit for long-term care, but if it’s not all used up at death, the benefit is paid tax-free to your beneficiaries.  Most important, there is the option for an unlimited continuation of benefits provision that extends the long-term care benefits for life, so they won’t run out.  This is important if, for example, Alzheimer’s were to occur.  These have guaranteed, fixed premiums and offer limited premium models (i.e., one-time lump sum payment, or limited years of payment such as a ten-year payment term.)  These can save a great deal of money over paying premiums annually
• Benefit Amount—Benefits can have a daily or monthly maximum. Monthly is best as long-term care expenses, particularly at home, vary from day to day.  Having a daily limit won’t let you overspend one day even if you underspend on another day.  The limits generally range from $3,000 to $10,000 per month.  Consider this issue carefully because the benefit amount is one of the primary costs of long-term care insurance.  One way to determine an appropriate benefit amount is to review the costs of care in your area with your licensed insurance agent to assess your current risk with having no insurance as well as what these costs will look like in the future when you are most likely to need care.  You do not necessarily need to have the benefit amount cover all your long-term care costs—Social Security, other income and savings can also be used to make up the difference
• Duration of Benefits—This is really a “pool of money” concept. For example, a $6,000 monthly benefit with a lifetime maximum of $360,000 means that if you spend the entire $6,000 each month, the plan would last five years.  On the other hand, if you spend $3,000 of the $6,000 maximum each month, that same plan would last 10 years.  So, it’s not about the time, it’s about how you draw down the money.  Some plans have unlimited long-term care benefits.  This means while there still is a monthly cap, there is no lifetime maximum, so the plan will last as long you need care.  This is particularly important if someone were to have dementia or Parkinson’s for example, which could result in many years on claim
• Covered Location—Most contracts purchased today are comprehensive, meaning the benefits will cover in-home care, adult day care, residential care facilities (i.e., assisted living, board and care) and skilled nursing facilities. The goal is to keep you at home if possible.  That is generally preferred by most individuals, and often provides better care.  Bottom-line—this allows for what is best for you and your family
• Levels of Care—There are three major levels of long-term care:
  1. Skilled Care (nursing care, rehabilitation and therapy under the care of a doctor)
  2. Intermediate Care (part-time nursing care or rehabilitation)
  3. Custodial Care (assistance with activities of daily living)
     The insurance contract should cover all three levels of care and should not require skilled care before paying for less expensive custodial care

• Length of the Elimination Period—The elimination period is like the deductible, but it is measured in days instead of dollars. These generally range from 0 to 90 days.  Some contracts have reduced elimination periods for home care, while a 90-day elimination period for facility care may make sense.  This is beneficial since most claims begin at home
• Inflation Protection—As the boomers age and demand for long-term care increases, long-term care costs are expected to rise higher than inflation. If there is no inflation protection in the insurance contract, consider adding an inflation rider.  Long-term care costs grow at an average of 3% compounded nationally (Genworth 2017 Cost of Care Survey) so that’s a popular choice.  In some areas of the country, however, growth rates are higher, so a 4% or 5% model may be worth considering
• Tax Consequences—Most long-term care contracts are “tax-qualified” which provides two advantages:
  1. First, benefits are not subject to federal income tax (although there may be a daily maximum which is tax-free)

  2. Second, all or a portion of the premiums may be deductible if the premiums (along with other qualified health expenses) exceed a “cap” of 7.5% of income in 2018 and 10% in 2019. If you are self-employed or have an LLC or S-Corporation, however, you can deduct the age-based limits without the threshold cap of 7.5% or 10% in 2019. A C Corporation can deduct 100% of the premium without a cap to deal with.

If you do not own a business, the proportion of the premium paid that is deductible as a medical expense depends on your age(s):