Investing In Long Term Care, Part I
By Lisa Christiansen
This article is inspired by my friend who has a law degree; he is also a retired banker and financial planner. I will remind you that he has been retired for about 5 years, I do believe his input is still pretty much top-line. I feel the most under-utilized financial product is long-term care insurance (hereafter LTC)
… … The main reason it is under-used is because it’s expensive. Other reasons are that you might pay premiums for lots of years and never get anything back. Also that many people are fed-up paying insurance forever, i.e. car ins., home ins., health-care ins, life ins., etc. So, why not gamble and not do LTC, because Medicare or Medicaid will pay if I don’t?
To briefly answer those concerns, yes it is very expensive and will only get more expensive because we live longer and that health-care costs have skyrocketed. If you buy a $50,000.00 life policy, the insurance company knows what their liability is, with LTC, their exposure is open-ended, and they may pay for 10 years or 30 years. If you think LTC premiums are out of sight, try paying for a couple of years in a decent nursing home. I promise you it is higher than you can possibly guess. My advice is if you are thinking about purchasing do it as young as you possibly can. If you wait until you are 65 or older, it may not be practical to purchase because of the cost.
As to paying for something and possibly not ever getting any benefit from it, you should be so lucky. He says “YOU SHOULD BE SO LUCKY”. He says he would be happy to pay premiums forever if it meant that he lived to a ripe old age and never used it because of the quality of life that implied.
I could write a chapter about what LTC cost the government governs. For Medicare to cover, the hurdles are as follows: 3 days of hospitalization; Only in “Medicare Approved” Facility; Does not cover Custodial Care, only Skilled Care (over 90% of care is Custodial); It pays nothing for Assisted Living, Limited as to Home Health Care. If all this happens, they will then pay 100% for days 1-20. Days 21-100 they cover 100%, except for your co-pay portion, which is over $120 per day. After day 100, they pay ZERO, you pay 100%. For Medicare, it is done on a state by state basis; you must spend down to a certain amount, like $2,000. There are restrictions on your ability to gift down to the set limit. You have no control over what facility you are placed in, and often there are waiting lists to get in.
My conclusions, if you are going to consider this product, shop carefully because the insurance company and the agent are more important than with other products. If you are buying a $50,000.00 term policy from a decent rated company, price is probably the most important factor and any insurance agent can write it. You never want to buy from a low-rated insurance company, but it is critical with LTC. Hopefully, you aren’t going to need this product for 20 or more years, also unlike most insurance products, you know what the price is always going to be. Not so, with LTC, all companies reserve the right to raise your premiums at any time if the states approve the increases. I would only buy from a company with an A or A+ rating, one that has been in LTC business for several years and has a sizable book of business, and most importantly has never increased premiums. This eliminates a number of companies and he also recommends that you go to an agent that specializes in LTC because lots of agents know nothing about the product.
If there is enough interest I would write a follow-up article about the different options and features of a LTC insurance policy.
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