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A Long-Term Care (insurance) Primer
Good news. The longer you live, the longer you live. Bad news. With each birthday you may lose the ability to take care of yourself physically, mentally, or both. Physically speaking, you may not be able to perform one or more of the “activities of daily living” (ADLs) like bathing, dressing, eating, toileting, or getting in and out of bed. Before that you may lose the ability to perform “instrumentalities of daily living” (IADLs) such as household chores, meal preparation, or managing your finances. Mentally, beyond common everyday forgetfulness, Alzheimer’s and dementia can rob you of the ability to recognize even your closest loved ones. Whoever said “growing older is not for sissies” was right.
Long-Term Care Challenges
If you cannot perform various ADLs or IADLs, then you will lose a bit of your personal independence. Take heart, however, as you are in good company. Some 70 percent of Americans who reach age 65 will require long-term care assistance, but many have no idea how to pay for it. And, yes, it is expensive. According to the latest figures from 2018*, the average annual cost of a private room in a skilled nursing facility is $100,375, and $48,000 for a one-room unit in an assisted living facility.
What is your plan regarding who will help you and where you will receive that help? How will you pay for it? In the end, will the only thing your children “inherit” be you? There are five options when it comes to paying for long-term care.
Some Payment Options
- Personal and Retirement Savings frequently are depleted when one spouse requires long-term nursing care.
- Medicare may pay for a limited amount of short-term skilled nursing for patients who qualify.
- Medicaid is a means-tested benefit that may pay long-term care costs for those who meet strict financial eligibility requirements.
- Family members, historically, have been the primary source of caregiving, but for many, this may not be a realistic option. Nevertheless, some states have laws that hold adult children financially responsible for the long-term care needs of their parents.
- Insurance is a proven option. In fact, we already buy various types of insurance with premium payments we can afford to cover catastrophic financial losses we cannot afford. We insure our homes, our automobiles, and even the economic value of our lives. Long-term care insurance (LTCi) is an option that can help maintain your independence later in life and financial peace of mind for you and your loved ones.
LTCi Features and Benefits
Traditional LTCi functions much like automobile insurance. You pay premiums, get nothing out of the policy unless you have some sort of damage to your automobile. Alternatively, in response to consumer demand, some LTCi policies are actually “riders” to life insurance policies. Eventually the policy will either be there for your long-term care needs or it will pay an income tax free death benefit to your loved ones. This death benefit can even be used to compensate a loved one who took time out of the work force to care for you before you needed full-time professional care.
Most LTCi policies share some common features and benefits. Here are a few you should know:
- Benefit Amount: How much and how long will the policy pay? Look to your family history regarding the long-term care experiences of your parents and grandparents. It is, after all, hard to fool the gene pool.
- Benefit Triggers: When will the policy pay benefits? Which and how many ADLs must you be unable to perform without assistance?
- Inflation Protection: The senior population with retiring Baby Boomers is set to explode. Remember the law of supply and demand? Will your Benefit Amount purchasing power keep up with inflation?
- Level of Care: Are Home, Custodial, and Intermediate Care covered, along with Skilled Nursing Care? About 80 percent of all long-term care is provided at home, whether in one’s own home or the home of a loved one.
Have you heard of the legal doctrine Caveat Emptor? Translated from Latin it means let the buyer beware. Perhaps look before you leap is another maxim expressing the same sentiment. When it comes to LTCi, the policy is only as good as the underwriting company. Accordingly, do your due diligence homework on the financial strength and reputation of any LTCi company under consideration.
The Internet is an excellent source for information and, when it comes to insurance company ratings, it will not disappoint. Several of the established insurer rating companies are A.M. Best (www.ambest.com), Fitch Ratings, Inc. (www.fitchratings.com), Moody’s Investors Service, Inc. (www.moodys.com), Standard & Poor’s Rating Services (www.standardandpoors.com), and Weiss Ratings (www.weissratings.com). In addition, a treasure trove of information and resources about LTCi and insurers can be found at the National Association of Insurance Commissioners website (www.naic.org).
*Genworth “Cost of Care Survey 2018”
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