Aware Senior Care Blog

 Long Term Care Insurance: The Elephant in the Room

Long Term Care Insurance: The Elephant in the Room

Long Term Care Insurance: The Elephant in the Room

The "elephant in the room" as defined by the Cambridge Dictionary: 

"If you say there is an elephant in the room, you mean that there is an obvious problem or difficult situation that people do not want to talk about."

Gina and I would like to share our experience in researching and securing a long term care insurance policy (LTCi).  

How long did it take for us to decide and get it done?  About a year and a half. 

Why did the process take so long?  The delay was due to a combination of things:

  • Denial.  Gina and I are in year five of owning and running a home care agency (Aware Senior Care) and we've experienced firsthand the pain of families struggling with home care and how to pay for it. You'd think this would make the decision easier, but it didn't. It’s a big decision with a significant financial commitment.  We equated the process much like paying for our first house.
  • Drinking from the fire hose.  There seemed to be so many options that at one point I took the stack of brochures and documents and threw them in bag in our attic.  The options, riders, qualifications, and all the little details completely overwhelmed us.
  • Financial Commitment.  You will make a significant financial commitment and you and your spouse need to be in lock step understanding this commitment.  Can you afford it?  After our experience in managing care for Tim's mother in assisted living, we knew we couldn't afford NOT having a plan in place.
We've been there. We've seen it. We had to get it done.

The Questions about Long Term Care Insurance You Need to Ask

  1. What is long term care insurance and what do you need to know? An excellent resource to get started is reading a Shoppers Guide to Long Term Care Insurance. This is a great resource from the National Association of Insurance Commissioners that gives you all the basic information you need – what is LTCi?  Will I need it?  How does LTCi work and the various types of policies?  How can you pay for it?  Also provides useful information about Medicaid. 
  2. Do you need it and is it right for you? After reading the guide, sit down with your spouse and discuss your feelings.  Answer each other’s questions and then decide if you both feel you need it?  Page 7 of the guide has a great summary with the title “is long-term care insurance right for you?”  Here’s the summary if you don’t read through the guide:
a. You should NOT buy long-term care insurance if:
- You can’t afford the premiums.
- You don’t have many assets.
- Your only source of income is a social security benefit.
- You often have trouble paying for utilities, food, medicine, or other important needs.
- You are on Medicaid.

b. You SHOULD consider buying long-term care insurance if:
- You have good assets and/or a good income.
- You don’t want to use most or all of your assets and income to pay for long-term care.
- You can pay the insurance premiums, including possible premium increases, without a problem.
- You don’t want to depend on support for others.
- You want to be able to choose where you receive care.

Generally, there are three scenarios that most people fall into with regard to funding long term care costs:  

  • Those with no assets and very little savings.   These people tend to utilize Medicaid as their only option, and plan ahead to reduce savings and rid themselves of assets.  Medicaid planning is an entire industry in itself.
  • Those with some retirement assets and income.  These are the bulk of Americans, for whom a $250,000+ LTCi cost expenditure over a number of years would severely disrupt their retirement income plan.  These are the folks that NEED long term care insurance. (Where we are).
  • Those with high personal net worth, i.e. more than $5 million.  These folks can afford to self-insure, although most tend to leverage insurance in some capacity (they are smart, that’s why they have $5 million).
Some good stats from page 5 from the shopper’s guide referenced in this Blog:

  • About 70% of people who reach age 65 are expected to need some form of long-term care at least once in their lifetime.
  • About 11 million Americans of all ages require long-term care, but only 1.4 million live in nursing homes.  
  • About 35% of people who reach age 65 are expected to enter a nursing home at least once in their lifetime. Of those who are in a nursing home, the average stay is a year.
3. How much do you need?  This is a very tough question and unfortunately, the guide only gives you data on average costs for skilled nursing, assisted living, and home care. A good financial planner and long term care broker would probably recommend looking at a 2-3 year period of long term care.  If you plan to stay at home, personal care right now on average is $25/hr.  If you plan for 3 years, 7 days a week with 8 hours a day, the total would be $219,000. That’s for one person. Realistic? VERY. We have had a client now for three years who requires 24/7 personal care. It's a very realistic scenario.
4. What are your goals and what's important to you?  Since we have been involved in the care for our parents AND we’re providing home care to people in their homes and in communities every day, we understand the costs of care, the various options (home care, adult day care, continuous retirement care communities, assisted living, skilled nursing etc.). It helped us form some goals:

  • We want to avoid being a burden on our children and/or counting on support from others.  This means to the extent possible, we want to have funds earmarked for end of life care to minimize the time and involvement from our children making decisions, providing support (care), and/or helping pay for it.
  • Ideally we want to stay at home.  We know we can’t control certain life events but home is where we want to live out our lives (note: to do this we know we need to build out our circle of support – family, friends, healthcare resources, transportation, etc.)
  • We wanted a policy with no ceiling or cap.  We personally have seen instances with clients afflicted with a stroke that go on to live for years needing home care. This one requirement severely limited our policy choices.  Many policies pay based on what you put in and once funds are gone, they are gone.
  • Imagine we both go skydiving at the same time and the parachutes fail to open. (note, Gina went skydiving at age 40 but for some reason I’m not keen on jumping out of planes.) Say, in an unfortunate version of this skydiving scenario, we pass quickly and never use the policy. It was mandatory for us that our policy does have the “don’t use, you lose” stipulation. Our policy had to accommodate the scenario that if we don’t use some or all the funds, the full policy or remaining policy balance would go to our heirs. Make sure you understand what happens if you never use the policy.
  • Consider the benefits of a minimal or no elimination period. Time and again we’ve had clients tell us they have a great long term care policy only to find there is an extended wait (elimination) period. Typically, we see a 90-day wait period before policies pays out. We’ve seen some clients rapidly decline and just when they were reaching the end of the elimination period, they passed. Make sure you read the fine print and decide if you want to take a risk having a long elimination period.
  • What triggers the policy?  Page 21 of the guide covers this well.  Make sure you choose a policy that is very clear and easy to start services. Many policies trigger on starting when you can’t do two activities of daily living (ADLs are defined as bathing, continence, dressing, eating, toileting, and transferring).  Gina and I asked a lot of questions and asked to see the details from our policy company to make sure it was clear and easy when the time comes to use it.  Note, some policies require a medical doctor to approve before LTCi can kick in.
  • Consider the extent of services covered. Decide or make sure you understand the scope of long term care coverage. Some policies may cover care in the home but not in assisted living. Make sure your agent explains what’s covered in detail. Some policies allow for family members to provide care. Some require licensed agencies.
The most important advice we can give is to find a great financial advisor before you get started.

Work with a financial advisor you trust. Why? 

One of the biggest things we learned going through the process of planning and choosing long term insurance is it’s a significant financial commitment and it should be integrated into your overall life (retirement) plan. This means including this activity in your retirement planning. You will find that many financial planners and advisors are also well versed in, or even brokers for, long term care insurance OR they have relationships with some great LTCi agents.

Here's an example of how long-term care insurance can factor in your retirement expenses.  

Your big picture “Retirement Plan” SHOULD include a slice for long term care expenses.  Not thinking or planning for long term care is ignoring the elephant in the room.  Go through the process and determine the goal ($ amount) for long term care and take that slice out.  

What did we choose?  Keeping in mind our goals and our current financial situation, we choose a policy from The State Life Insurance Company a OneAmerica company.  

We didn’t want to pay a monthly premium so we allocated immediate cash for the policy which is called “Asset-Care 1”.  It’s a single premium whole life insurance policy with long-term care benefits for either of us.  It also features a critical addition of what’s called an LTC Benefits Continuation Rider.  

This rider guarantees additional LTC coverage in perpetuity at a fixed amount per day and has inflation protection built in. Again, it fit our main requirements well and I think an approach of combining the benefits of whole life insurance with an LTC rider is a good way to go. You are taking care of life insurance with a death benefit AND planning for long term care.

Helpful Resources for more information on Long Term Care Insurance

How much does long term care cost?
U.S. Department of Health and Human Services Administration on Aging (AOA) has statistics on types of care and cost averages, as does Genworth.  

Costs vary from state to state, so you need to plan for where you will live. Consult with a great Geriatric Care Manager or Advocate. They are a wonderful resource who can help put together a holistic care plan, and part of their service is helping with financing care. They know the numbers better than anyone. See our website under our circle of support for some great people that can help you.

What types of policies are there?  In terms of policies available, they fall into three main categories:

  • Traditional Long Term Care Policies. Genworth and Mutual of Omaha are two of the bigger carriers. These plans are pay-as-you-go or lump sum. They are most often “use it or lose it”–type coverage.
  • Permanent Life Insurance Policies or Annuities with Critical Illness Death Benefit Advance Riders. These policies allow for an accelerated death benefit (as a percentage of face value up to IRS annual maximums) to be used for LTC, or other costs.
  • “Asset-Backed” Long Term Care Strategies. These products are often whole- or universal life insurance-based, but essentially act as a leveraging strategy for current assets. They have the least restrictive underwriting requirements, but do require a meaningful capital contribution, either lump sum or 10-20 pay.   This is what we chose.
With regard to any of these policies, it is important to understand how they work, what they cover, and how they pay out. Read the longer version of types of long term care policies on our website in our Resources section under downloads and tools.

Tax Benefits of LTC Premiums.  Consult both your tax professional and financial advisor to understand the tax implications

NC Long Term Care Partnership Program.
  A North Carolina Partnership for Long-Term Care qualified policy provides you, as the purchaser, with the right to apply for Medicaid under modified eligibility rules that include a special feature called an ‘asset disregard’.  This feature allows you to keep assets that would otherwise not be allowed if you need to apply, and qualify, for Medicaid in order to receive additional long-term care services. The amount of assets Medicaid will disregard is equal to the amount of the benefits you actually receive under your long term care Partnership-qualified policy.

What Companies did you evaluate?  We evaluated policies from:
Searching for the right long term care insurance plan was a long process, but we feel we've found one that works well for us. We hope you found this blog insightful and if you're looking for LTCi, we hope the resources we've provided point you in the right direction to get started.

Have you purchased LTCi? What has your experience been like? Feel free to let us know in the comments.

This blog was originally posted on SeniorCare.com on January 25th, 2019.

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