The baby boom generation is in choppy, uncharted waters when it comes to their long-term care needs. By 2020, nearly 55 million Americans will be 65 or older, and lifespans are getting longer. In recent years, analysts have pointed to the impact of elder care on the so-called “sandwich generation” — adults who were responsible for their aging parents as well as their own children. With longer life spans, the sandwich generation of the future may well refer to people in their 70s providing care to their parents in their 90s, or adults helping two generations above them in their working years. With the looming prospect of serious long-term care needs, it is vital for individuals and families to take their personal financial planning seriously and have a plan to pay for a long-term care event.
For many families, long-term care insurance (LTCI) can make all the difference. LTCI coverage directly addresses the healthcare costs of aging or disabled individuals, in the environment that best suits their wants and needs. Whether the setting is your home, a residential care facility, or a nursing home, LTCI benefits supplement other income and assets to minimize the impact of those expenses.
Client investigation: LTCI protects care for 97-year-old great-grandmother
Ruth is a 97-year-old great-grandmother who bought an LTCI policy 18 years ago at her son’s urging. Three years ago, while still living independently, she realized she needed help with her daily living and moved into a residential care facility using her LTCI benefit.
Last year she was diagnosed with dementia. She was transferred to the facility’s dementia ward, where she receives 24-hour care and continues to receive LTCI benefits. The current cost of her care is $6,900 per month. Her LTCI benefit pays $150 per day, or $4,500 per month, about 65% of her LTC costs. The remaining $2,400 is taken monthly from her Social Security benefits and savings.
Assuming she continues to collect benefits, she will have accumulated $216,000 by the time she finishes her four-year benefit period. Ruth is now waived and has paid a total of $48,900 in premiums since the policy began. Her LTCI policy has allowed her to pay for her care without depleting her savings and using Medicaid.
Is LTCI a good option for you or your family?
Here are some considerations that should be part of your discussion:
Get informed about the reality of long-term care. Ready for sticker shock? The average cost of a private room in a nursing home is now more than $90,000 a year, and the average nursing home stay lasts nearly three years. Government insurance programs other than Medicaid do not address long-term care issues.
Plan ahead – way ahead. LTCI premiums are most affordable when individuals sign up while still relatively young and healthy. LTCI buyers in their 40s or 50s may pay thousands less per year than older buyers, and few companies will write policies for those over 75. Health and family history will also affect the cost of premiums and availability of coverage.
Take care of mom. Most of us are familiar with the fact that women live longer than men. Industry statistics show that 71% of new claims come from women. As a result, women’s premiums for LTCI tend to be higher than men’s (unlike life insurance, where women usually pay lower premiums). However, the investment is worth it given the greater potential costs they face. As mentioned above, buying LTCI at a relatively young age can help lower the premium.
Customize a plan to fit your needs. LTCI products are available for very specific priorities. Choices abound in terms of coverage amount, deductibles (commonly referred to as eligibility waiting times), options for increasing benefits that account for inflation, and specialized shared plans for couples. Insurance advisors often create combination plans with annuities or life insurance policies, taking advantage of tax laws for both traditional and asset-based plans. These tax benefits may include tax-free LTC benefits and/or 1035 tax-free exchange for asset-based life/annuity plans with an LTC driver.
Obviously, experienced guidance is a must when considering these factors. Buyers should seek insurance professionals with a strong background in LTCI who can fully describe the benefits and limitations of a plan. It makes sense to consult experts in your community; costs can vary greatly by region and these experts have the best access to accurate, relevant information.
We all need to face the real changes that occur as we age and think about the best way to protect our assets and our families. For those with the foresight, ability and commitment to make that protection happen, LTCI is a proven strategy that works.