Who Needs Long Term Care Insurance?

November is known in my industry as ‘LONG TERM CARE INSURANCE AWARENESS MONTH,’ so I decided that was what I should educate 👩🏾‍🎓 you about. Did you know that will 66% of Americans believe that most people will need long term care insurance, only 18% say they own it? 😱(Resource: LifeHappens) 

 Most of my clients are familiar with life insurance, and understand how important it is for you, especially once you have family 👨‍👨‍👦‍👦 members or other causes you would like to leave a legacy for. Slightly fewer clients grasp the importance of long-term disability (or income) insurance. Disability insurance pays you an income when you cannot earn that income yourself, due to injury or illness. 

 But the least understood of all of insurance coverages is LONG-TERM CARE INSURANCE.

So, WHAT IS LONG TERM CARE INSURANCE?

Decades ago, a typical pure long-term care insurance policy would pay benefits to the insured if the insured person required help to perform 2 out of 6 ADLs (ACTIVITIES OF DAILY LIVING ).

The 6 ADLs (ACTIVITIES OF DAILY LIVING) are:

1. Bathing (ability to sponge bath or get in and out of tub 🛀🏾)

2. Eating (ability to feed oneself w/food or feeding tube 🥗)

3. Continence (ability to maintain control of bladder/bowel functions)

4. Toileting (ability to get to/from the toilet and perform personal hygiene 🚽)

5. Dressing (ability to put on/take off all items of clothing 🥻👔)

6. Transferring (getting in and out of bed, chair or wheelchair 👨🏼‍🦼)

Thus, if you never needed help with 2 of the above, your policy would not pay out, and your insurance premium dollars would expire worthless upon your death. However, what insurance companies did not anticipate was the very high number of claimants where they DID have to pay out. As a result, the industry for pure long-term care insurance was thrown into a bit of disarray, with many carriers exiting the business.

Today, while pure long-term care is still available, it is a ‘use it or lose it’ type of insurance (similar to car insurance). However, the industry has also evolved to offer different types of coverage that clients have requested.

More often we are running quotes for ‘HYBRID LIFE INSURANCE/LONG-TERM CARE INSURANCE.’ With these types of policy, someone will eventually receive long-term care benefits, a death benefit, or some combination of the two. Some carriers even allow for a ‘return of premium’ option – which allows you to cancel your policy and request your premium 💵 dollars be returned to you.

SHOULD I BUY LONG TERM CARE INSURANCE?

As a Certified Financial Planning Professional, I receive this question ⁇ a lot. Should I buy long term care insurance? Or, how does someone actually decide they may benefit from a long-term care policy?

I often start by referring my clients to the GENWORTH COST OF CARE SURVEY. This survey is completed annually by Genworth, a provider of insurance products. You can choose your state of domicile 🇺🇸, and then see projected daily, monthly, and annual median costs at some point in the future.

For example, when I look at projected annual costs of care for a home health aide (meaning, I need help to perform at least 2 ADLs, but I prefer to stay in my home) in Boston, MA, the 2050 cost of that care would be approximately $164,000. If I multiply that by 3 years (which is the approximate length of long term care policy claims), that would mean that my family may spend almost $500k on my health care needs.

And if my girls 👩‍👩‍👧‍👧 had to transfer me to an assisted living facility, the annual costs could run as high as almost $193k per year!. I ran the calculator assuming a 3% annual inflation rate, which is honestly pretty low. We have seen rates as high as 8% for health services.

Check out my illustration below, and then check out the cost of care survey for your state. (For illustrative purposes only (source: Genworth Cost of Care Survey).

So you may be thinking, ok, so what? What does that mean for ME, and my family? For my clients who can save enough to pay for those potential costs out of pocket, then we will discuss self-insuring. However, I explain to them that we ALSO see figures of health care costs in retirement, NOT INCLUDING LONG TERM CARE COSTS, approaching $300k per person (source: Fidelity)

When we add that $300k to the almost $500k for long term care costs, that means I should save approximately $800k for health care PLUS long term care costs, just for me. And I should double that figure because I’m married.

In my own financial plan, my chances of saving $1.6mm for my husband and my total health care and long term care costs ONLY are minimal. This is mostly because we are working hard to save for retirement and pay for education for our girls 👩‍👩‍👧‍👧. Which is why I’m a big believer in long term care insurance. I prefer to dedicate a portion of our cash flow to insurance premiums, so that we have at least a portion of our long term care needs covered. With the possibility of insurance covering a certain percentage of those costs, this may allow me to leave more money to my girls and/or fulfill my charitable objectives 🐝🌱🐈🦮.

WHAT TYPE OF LONG TERM CARE INSURANCE POLICY DO I NEED?

Here are 2 options of types of long term care policies to consider:

1. Traditional long-term care insurance.

You can choose the amount of coverage, how long it lasts, and how long you have to wait before receiving benefits. Typically, you pay an annual premium for life, although your premium payment period could be shorter.

2. Hybrid long term care insurance which offers life insurance AND long-term care.

A life insurance and long term care hybrid policy will pay for long-term care during your lifetime if you need it. But if you don't use your long-term care benefits, it will pay a life insurance death benefit to your beneficiary upon your death .

If you had a long-term care need, you would be able to draw down or accelerate the death benefit amount to pay for your care, subject to a monthly maximum amount. However, even if you used up the entire death benefit, the insurance company would still provide additional long-term care coverage.

Your case may, or may not, be similar to my family 👩‍👩‍👧‍👧. You may live in a lower cost of care state, and/or you may be able to save and self-insure your own costs down the road. But most of the people I work with do not have that ability. Typical clients are similar to my own family in that they are working hard to balance the current costs of day to day life, with the long-term savings goals of retirement ✈️ 🚴🏼‍♀️ and college education 👩🏾‍🎓.

WHEN DO I NEED TO START THINKING ABOUT LONG TERM CARE INSURANCE?

As I’m a big believer in appropriate insurance coverage, I start talking about life and disability insurance for my clients in their 20’s and 30’s. I introduce the long term care insurance discussion as my clients approach their 40’s and 50’s. However, according to the American Association for Long Term Care insurance, the largest percentage of long term care insurance issuance occurs between 50 – 59. Some carriers will even issue policies into the 60’s.

DO I NEED LONG TERM CARE INSURANCE IF I’M SINGLE?

If I’m single - do I need long term care insurance? I believe that SINGLE CLIENTS 🧕🏾👨🏻‍🍳 should pay particular attention to LONG TERM CARE INSURANCE. In my case, with 4 daughters, there is a good chance that one of them can help me if I should need it – I’m not saying that they will WANT to do that.

But I know that because I have long term care insurance, I’ve put my girls in the future position of CARE SUPERVISOR instead of CARE GIVER. I do NOT want them to have to help me with my ACTIVITIES OF DAILY LIVING. I’m way too proud for that, and I want them to be able to enjoy their own careers and families instead of caring for mom.

Many single clients do not have family 👨‍👨‍👦‍👦 members who could provide physical help if they need it. It is, thus, possibly even more important for them to have a good policy, which will provide them the financial 💵 resources to pay for qualified home health care or a nice facility if they need to move to one.

WHAT NEXT? HOW DO WE START THE PROCESS OF OBTAINING LONG TERM CARE INSURANCE?

How does the process of obtaining long term care insurance work? There are many providers of long term care insurance policies, and I work with my clients to find a policy that fits with their budget, and provides the benefits that are most important for them. We compare different types of policies, and the pros/cons of each. This is such an important part of FINANCIAL PLANNING, that it really makes me happy to help with, and feel good about their coverage.

HOW MUCH WILL LONG TERM CARE INSURANCE COST?

So how do I know how much long term care insurance will cost 🧾 me? Your insurance premiums will vary based on your health, age of issuance, and premium payment plan. We work together to determine the correct coverage, premium level, and payment term, that work with your budget. For most of my clients, we expect to budget anywhere from a few thousand dollars per year for life, up to tens of thousands of dollars for premiums that we only have to pay for 10 years (these are called 10-pay policies). Depending on the carrier, we may have different options for time period for premium payments. We also sometimes may advise single pay policies. This occurs when the clients have underutilized funds, such as those that may be sitting in cash 💰. We dedicate a certain sum for a one-time payment that funds the policy. The lower limits for this type of issuance is typically $50k for a single premium.

But don’t let premium figures scare you 🙀. We will work hard to find the policy that fits your budget and provides benefits that can complement your long-term financial plan. And I forgot to mention that there are also potentially tax deductions for your long term care premiums!

SO AFTER ALL THAT, SHOULD I CONSIDER LONG TERM CARE INSURANCE?

Should I be considering long term care insurance? For most of my clients, that answer is, in my opinion, yes. Each client’s particular circumstances vary, but it does make sense to at least have a conversation about it, and whether it is an appropriate addition to your long-term financial plan.

CONTACT ME TODAY (email/phone) SO I CAN ANSWER YOUR QUESTIONS AND HELP YOU! 🤝

I look forward to helping you with this important aspect of your long term financial goals.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual Guarantees are based on the claims paying ability of the issuing company.