Investing In Long Term Care, Part III
What is Long Term Care if you broil it all down? It’s purpose is to provide access to a pool of $’s that will be available at some future date to protect your cash flow and lifestyle so that it will take care of you and leave something to your heirs. I personally think LTC insurance should be considered more like Health Insurance (a necessity), rather than Life Insurance (nice to have). LTC insurance is really extra Health Insurance. Long term care never brings families together, but it can tear them apart
There are several areas I want to cover in this final article so let’s get to it. Buying a LTC policy is so different from buying a life insurance policy. The underwriting is a lot different, normally there won’t be a medical exam. They are much more concerned about things like Alzheimer’s disease, Parkinson’s, MS, multiple strokes, or severe crippling arthritis. To put it bluntly, it’s okay if you die, just do it quickly, don’t lie there semi-conscious for 25 years and then be on the hook to pay for it. The basic decisions to buy a Life Insurance policy are the amount, term vs. permanent, and a couple of options, like do you want double indemnity? If you thought just deciding that a LTC policy was all that you had to decide, just wait until you see the other decisions you have to make.
Six Important Decisions You Need To Make. 1. How much coverage? (Daily benefit) 2. How long a benefit period? (One year up to Lifetime) 3. When do the benefits kick in? (Elimination Period) 4. How much do the payments grow? (Inflation Rider) 5. Where? (Comprehensive vs. Facility Only) 6. When should I purchase? (Sooner, Rather than Later).
The amount of coverage is usually done in $10.00 increments from say, $40 per day to $300.00 like housing, where you live makes a lot of difference as to costs. Let’s assume a private room in a Nursing Home in your area is $180.00 per day (I haven’t checked prices in a while, but would guess this is a conservative number). Instead of automatically assuming that you should buy a minimum of $180 coverage I might recommend only say $140 based on your other assets, your SS benefits, and other decisions you have to make such as how many years of coverage you buy. One other option I almost always recommended was adding the inflation option, which is expensive, because of where I thought health care costs were going, thus far I have been correct in that assumption.
How long a benefit period? Again, one would think well, I need this for lifetime because if I get any good out of this it’s probably going to be at the end of my lifetime. Let’s review how the insurance company pays your benefits. Assume you have a daily benefit of $140.00 per day for 4 years. Then assume for a two year period you only need Home Health care twice a week @ $75.00 per visit. After that, you are in a Nursing Home @ $175.00 per day. My initial misconception was that you had “wasted” part of your benefits, i.e. a month of Home Health cost $600.00, while the Nursing Home cost $5,250.00 and you used two years of your coverage at the lower rate. Not so, think of it as a “pot of money”. $140.00 per day times 365 days per year times 4 years = $204,400.00 Every time you had the Home Health care visit, you subtract $75. from the $204,400. Every day you spent in the Nursing Home, you subtract $140.00 (Ins. Pays $140, you pay the other $35.00 per day). So, after two years of Home Health Care and two years of Nursing Home costs there is still about $94,000.00 of coverage left (depending on how you counts days, visits etc)
You can elect to not have an Elimination Period, but again pretty expensive vs. you paying for say 3 months or 6 months of the care before the insurance coverage kicks in.
The inflation rider adds a percentage each year to your benefit amount. This is the most expensive option, but I think normally it makes sense, again because of just being very worried about what costs are going to be 25 years or so from now. I, normally thought it was better to have this option and forego having lifetime coverage from a cost standpoint.
The early policies were only for facility care. Today, most policies are either comprehensive or facility only. Most people elect comprehensive because of the desire to stay in their own home instead of a facility.
When should I buy? I talked about this some in the prior article, but let’s go into a little more detail by an example. Assume a basic policy($100 pr day, 4yr. benefit period, 30 day elimination period, no Riders, especially inflation) Cost @ age 50 – $400.00 per year Cost @ age 65 – $1100.00 per year Cost @ age 79 – $4300.00 per year Who Wins? Tell me when you are going to start taking benefits. Ball Park Numbers: If you wait 3 years to Purchase, it will cost you 24% more each year If you wait 5 years to Purchase, it will cost you 68% more each year If you wait 8 years to Purchase, it will cost you 128% more each year. The right time to buy Long-Term Care Insurance is when you can afford it, and before you need it!
In addition to the Riders or Options discussed there are a number of others – Limited Pay Rider- You only pay for a certain number of years, such as 10. 15 or until age 65. Shortened Benefit Rider- When the policy as been if force at least 3 years and lapses due to nonpayment of premiums, you qualify for a reduced benefit. Monthly Indemnity Rider – If a benefit is being paid, especially for Home Health, this pays an additional set amount, regardless of costs. Return of Premium upon Death- Return is equal or a % such as 80% of the total Premiums paid reduced by benefits paid. Restoration of Benefits Rider- If benefits have been paid reducing the maximum lifetime benefits, it will be restored if you have not received benefits for a period of time, such as 180 days, and are no longer chronically ill. Guaranteed Purchase Option, Simple or Compound Inflation Rider- The Guaranteed Purchase gives you the right to increase your coverage, say after 5 or 10 years. The Inflation Rider, which I like again gives you the option of simple or compounded.
Then, there are Spousal Riders. Shared Care Rider- If you exhaust the Maximum Life Time Benefit, you may exhaust part of the Insured Spouse’s Benefit ( need the spouse’s signed consent). Waiver of Premium Rider- If the Insured Spouse is eligible for Benefit Payments and has satisfied the Elimination Period, this Rider will waive your premiums as they become due. Survivorship Rider- This provides for premiums to be paid up if both policies have been if effect a certain number of years and one of the spouses dies. Spousal Discount – A discount because of both spouses who are living together take out policies.
Then there are Home Health Care Riders. Waiver of Home Elimination Period Home Care Monthly Benefit Rider- Converts daily home care benefit to a monthly benefit period. Calendar day Elimination Period- Counts from the first day of service each day, rather than counting days of service. Monthly Indemnity Benefit- This pays and additional set amount regardless of costs, also increases if you have an inflation rider.
There are some other options, other than a Long Term Care Policy. There are some life policies that have options that can be considered. I call it a “Living Benefits” option that gives you the right to use proceeds while still alive. One other option I would mention is something, without giving the name of the company, I will call “Money Guard” Let’s assume that your “current plan” is that you have an “emergency fund” of $100,000.00 to take care of everything, including LTC. Under this plan, you would leave $50,000.00 in some sort of savings plan and place the other $50,000 in their Money Guard Policy. Our example uses a 65 year old female in good health that is a non-smoker They describe it as a 3-bucket policy. Bucket 1 is a Liquidity Bucket, it’s totally liquid, earns interest, and is tax-free. Worst case scenario, you never get less than $50,000.00 Bucket 2 is an Immediate Death Benefit. If you never need LTC and die at age 66 or 96 and have not taken anything out of Bucket 1, $110,000.00 passes tax-free to your Beneficiary. Bucket 3 is the Health Care Bucket, with another $110,000 available for Home Health Care. This simplifies this policy, but a total of $220,000.00 can be paid out in this example.
The three most important things I’ve told you, thus far are 1. Don’t count on the government to be there to pay your Long-Term Care needs. 2. If you decide to buy, do it Sooner rather than Later. 3. Don’t decide on Price alone, look also at the Company and the Agent.
Make the decision like you would any other major decision DO YOU NEED IT DO YOU LIKE IT CAN YOU AFFORD IT
If Buying Long-Term Care Insurance will give you Peace of Mind , BUY IT! BUT If you must change your standard of living to pay for it. THINK TWICE!
I close these articles to you by giving MY FIVE WISHES FOR YOU 1. May you never need Long-Term Care. 2. If you do, may you have the prudent plans in place to protect your independence and maintain your dignity in your remaining years. 3. May lawmakers remember that their job is to strengthen Medicare and Medicaid to help those who might otherwise be ineligible for Long-Term Care coverage. 4. May the insurance industry remember that we are paying the bill and demand clear talk. 5. May the medical professionals remember the old day of primary care and connect with their patients the way those earlier doctors did.
To Your Continues Success, May God Bless You,
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