The U.S. Department of Health and Human Services (“HHS”) estimates that more than two-thirds of Americans over the age of 65 will need some type of long-term care, whether at home or in a facility. Often, even care that starts at home eventually goes beyond what the family can provide. Thus, the odds of you spending a considerable chunk of money on this kind of care are strongly NOT in your favor.
Contrary to popular belief, or simply as an unfortunate misconception many people have, while Medicare may cover some of the cost of care in a facility – only if you are rehabilitating – Medicare does not cover long-term custodial care. Meanwhile, HHS also tells us that the average cost of care in a facility is fast approaching $100,000 per year, and that number continues to rise (like everything else these days, it seems). Given the likelihood of needing care, and given the cost of such care, it makes sense for you to consider your options about how to get – and pay for – the care you may need without losing everything you’ve saved. And you should have started this planning process yesterday!
One option many of our clients consider is purchasing long-term care insurance (LTCi). While LTCi is not a fit for everyone, it is a way to leverage resources to cover or defray the cost of care that might otherwise wipe out your estate.
Here are five things to keep in mind when shopping for LTCi.
1. Your age and health matter.
This may seem obvious, but it’s worth noting. It’s also why we put it first. We’ll build to the better stuff, we promise.
The younger you are when you purchase long-term care insurance, the less expensive it will be. Although, if you purchase LTCi at too young of an age, you are potentially paying premiums for a longer period of time, thus increasing the cost. While LTCi policies exist for the reasonably healthy even up to age 80, according to AARP, the real sweet spot is between the ages of 60 and 65. You’re not too young (avoiding having to pay premiums for a longer time), but you’re not too old. And hopefully you’re still in pretty good health. Unfortunately though, if you have certain health conditions (i.e. diabetes or heart disease), your age may not save you.
2. Before you click the “Buy Now” button, know exactly what services are covered, and perhaps more importantly, what services are not covered.
Policies may cover at-home care, adult day care, assisted living facilities, and/or skilled care facilities. At-home care may include professional nursing care, occupational therapy, or rehab. There may also be coverage for assistance with activities of daily living, such as bathing and eating.
A policy may even cover respite care, relieving family members providing for you at home, to ensure they have the ability to step away if/when needed.
As far as what may not be covered, like with health insurance, a pre-existing condition may create a situation where you have no coverage during an initial exclusion period, which period can last for several months after you’ve purchased the policy. These policies also won’t cover actual medical costs, which would generally be subject to your Medicare or other health insurance.
Know how the expenses are paid as well. Policies may be “reimbursement” policies, paying the actual cost of care (up to a certain dollar amount), or they may be “indemnity” policies, paying a certain daily or monthly amount, regardless of the actual cost of care. With both types of policies, depending on the benefit, there may be a shortfall that you will have to pay out-of-pocket.
3. Take note of when the coverage begins.
Most policies have what is known as a waiting period. During this waiting period, you will have to pay for the long-term care services with your own funds before the policy kicks in.
Insurance companies are good at making money. The longer the waiting period, the higher the odds of you passing away before they’re on the hook. And when that happens, the insurance company saves its money. As you might expect, the shorter the policy’s waiting period, the more expensive the policy will be.
4. There are types of LTCi that have a guaranteed benefit.
The traditional way of purchasing life insurance was the premium-based, “use it or lose it” type of policy. While often providing significant benefit to those that can afford the premiums, many of our clients are uneasy about the thought of spending so much on the insurance, and perhaps never needing it.
The industry has adapted in recent years. There are now products that are a hybrid between traditional life insurance and long-term care insurance. These policies are built on permanent life insurance (or sometimes are permanent life insurance with benefit acceleration provisions if you need care), so if the benefit isn’t used for long-term care, it will pay as a benefit to your children or other beneficiaries. Not only do you accumulate cash value in the policy that you can potentially access later, your LTCi no longer has to be “use it or lose it.”
5. Finally, if you buy your policy through an agent, ask him or her these three questions:
- How long have you been selling long-term care insurance? Everyone has to start somewhere, but LTCi and its variants are specialized policies. You need to work with someone who can navigate them with you and provide good counsel.
- How many policies have you sold? If the answer doesn’t seem like it’s high enough, it’s probably not. If the number is low (perhaps only a handful of policies), ask why. Is it lack of confidence in the products? Follow-through by the agent?
- How many companies do you work with? The agent generally should not be captive to a single insurance company. Not every policy is a good fit for every consumer, and different companies have different products.
Planning for long-term care is an important piece of the estate planning puzzle. Long-term care costs are generally the single greatest threat to your life savings. LTCi may not work for everyone, but don’t rule it out as possible planning tool, especially for those with sizeable retirement assets that cannot be protected in a trust.
At HM Law, we don’t sell insurance. But we know that insurance can be a vital piece to an estate plan/long-term care plan. As part of our process, we regularly work with our clients’ advisors when planning for long-term care. If you’re considering long-term care insurance or other nursing home protection strategies and want to see where it all fits into your estate plan, feel free to schedule a conversation with a Certified Elder Law Attorney or a Board Certified Estate Planner in our office. All you have to do is send us a note. Let’s Talk!