Ignore Long-Term Care Planning at Your Peril

If my post titled Toileting and Retirement, Should I Purchase Long-Term Care Insurance? Part 1 wasn't enough to scare the you-know-what out of all of us (concerning the need to at least consider getting long-term care insurance), here's a piece from the NY Times that says you should ignore long-term care planning at your peril. A summary:

You would think that there would be far more than seven million policyholders, given that costs for long-term care could easily reach seven (yes, seven) figures per individual 20 or 30 years from now.

Gulp. Seven figures? Yikes!!!!

And yet very few people have long-term care insurance. Why? The Times lists the following nine reasons:

• Medicare will cover it. 37 percent of people think that Medicare will cover their long-term care costs. But it won’t.
• I won't need/use it. Why invest in insurance if there’s a chance you’ll never need it? It’s a reasonable question, so consider your odds. The consulting firm Milliman, which does a lot of work for the long-term care insurance industry, thinks your odds aren’t so great. For people age 65 and older who have long-term care insurance, there is a 45 percent chance of making a claim, though it ranges from 30 to 56 percent depending on gender and marital status.
• I can self-insure. How much might it cost to pay for care yourself?
• Medicaid will pay for it. Medicaid may not offer the same choices that a long-term care policy will.
• My kids will care for me. If you changed your children’s diapers, then they should be prepared to change yours someday too, right?
• My kids will pay for my care. Still other parents assume, without really asking, that their children will pay for their care if the parents run out of money. Or one sibling assumes, without ever discussing it with the others, that the children will split any costs for care equally.
• The government will take care of me. One part of the landmark health care bill earlier this year is something called the Class Act. In effect, it sets the government up in the long-term care insurance business. No one will be able to enroll until 2012 at the earliest, and the plan may not pay much more than $75 or $100 a day for claims (and only after a five-year period of paying premiums first), though that will be indexed for inflation.
• It's too expensive now. In the first half of 2010, individuals buying through an insurance agent or financial adviser paid a $2,180 annual premium for common plans that pay claims that are not taxable for the policy holder. Given the price tag, it’s easy to see why shoppers might have demurred as the economy swooned over the last two years.
• It's too expensive in the future. Long-term care insurance premiums aren’t like those for, say, term life insurance. They can go up.

The issue isn't clear cut and (of course) there's not one plan of action that will work for everyone, but I think it's wise for everyone to at least consider their options, the costs, etc. as well as talk to their families about the issue well in advance of needing long-term care insurance. Otherwise, you may be sitting on a ticking time bomb.

But my suspicion is that most Americans will bury their heads in the sand (like they do when the issues of life insurance or disability insurance come up) and pay no attention to considering long-term care insurance until it's too late. Please, do not let yourself be one of these people.

I haven't yet explored whether or not my wife and I need/want long-term care insurance, but you can bet your bippy (yes, I said "bippy") that we will. It's too important of an issue to ignore.

Comments

[Apex]

The problem with paying premiums for LTC too far away from old age is that the standards of care, what you will want, what things will cost and what will the industry will be capable of providing are unknown and will change before you get to the likely need for care.

Think about it this way. What if you had to buy a medical policy today for your health care and you could not change a single thing about it and what it covered and how it would pay etc for the rest of your life. It currently only considers certain things acceptible and viable practices and will not pay for others. Obviously that will change in 30 years. No one would want to be locked into that arrangement. But that's the LTC insurance industry.

We will pay $x per day to be in a nursing home, indexed for inflation, and we will pay $y per day for in home care indexed for inflation.

Is that what the world will look like in 2050? I have no idea but I doubt it. I there is no way at age 40 I am paying thousands of dollars per year to be locked into some kind of policy that has a very good chance of being obsolete as far as the standard of care I would want by the time I need it.

If I consider it, I will want the finish line to be something that I have an idea of what it will look like. I understand that would mean the premiums would be higher by waiting, but at least I aint buying a really nice pet rock for my thousands of dollars per year.

[Nashville]

I'm currently shopping LTC coverage. Most of my other insurance is with State Farm so that is with whom I am currently speaking. They told me that age 60 was the last age at which the 5% annual inflation protection (5% increase in coverage every year, compounded) is available and it sounded like this might be an industry-wide thing (but not 100% certain).

So if you are or approaching 60, you better get shopping cause you definitely want this (some) inflation protection. FYI.

[JeffinWesternWa]

As a retired financial planner I knew the late 40's/early 50's are the "sweet spots" ages to purch LTC - PROVIDED your health allows, that is THE reason to buy it earlier. Don't think LTC Ins must cover ALL expenses as a high deductible (6 mos or a year), lower daily benefit (maybe only $100~) etc., allow you to use assets/retirement income as well as the policy $$. It's insurance, like car, home, life, etc., buy what you need and plan YOUR $$ for the rest! Unless you reach about $3M~ assets as a couple or have a guaranteed income pension w/ assets (and are willing to use/spend these for LTC) then BUY IT!

[jim]

I think it makes a lot of sense for a lot of people. If you can't afford the policy then you shouldnt' buy it. If you're a multi-millionaire then you can self insure. Many /most of us are in the middle. I don't think it makes sense to buy it till you get into your late 50's or early 60's in most situations.

[Apex]

@Nashville,

Really? I would check that. I find it almost impossible to believe. There is nothing magical about age 60 that will send their actuaries into a tizzy.

I think in some states that if you are under age 60 the state requires inflation riders to be compound rather than simple. This is actually quite important as a simple inflation rider will provide you very little benefit if purchased too early.

But even a compound inflation rider if purchased too early will be drastically inadequate if the inflation rider is not high enough to keep up with the rising costs of LTC. For example most places sell 3% compound riders or 5% compound riders. But LTC care is currently going up much faster than that.

This is another reason why buying this insurance at 30 or 40 may not get you want you thought. You buy a 5% inflation rider at age 40 and if costs go up 10% a year then by age 80 the policy is 6 times under funded from actual costs. 6 TIMES!!!! If you buy a 3% inflation rider and and inflation is 6% your policy is 3 times under funded from actual costs.

The risk of waiting too long is obviously getting some really bad disease like MS and then becoming uninsurable. I consider the risk of purchasing an expensive pet rock to be far higher than the risk of being uninsurable. I won't look at it until at least 50 and even then I doubt I would want to buy it that young. I may never buy it. Self insurance may be what I decide to do, unless there are some really good policy options.

[Everyday Tips]

I am not a LTC Insurance expert by any means, but I do know that generally it will only cover a finite period of time. I think I read once that 8 years ago it would cost a 50 year old almost 600 dollars a year to get 150,000 worth of coverage. Certainly if you use, it, you could never get that kind of return in the market from invest 600 dollars a month. (I am sure premiums are more expensive now.)

Like many things in life, it is a calculated risk. My mother in law is disabled and is going through money like crazy for her assisted living care. 150,000 would definitely help. Someone like her would have really benefited had she taken out a policy at 50 since she became disabled at 58. But, you never know.

[Dominique]

Some comments:

1. With long term care, you are really buying a dollar amount of coverage.
2. Many LTC policies have an open ended clause that would allow to cover for treatments that do not even exist today, as long as they are OK by your long term coordinator.
3. Even though inflation indexed yearly adjusted policies would be the best coverage, they are very expensive. A policy that adjusts the coverage every 2/3 years, will give some protection and will cost much less.
4. Even though the first LTC policies were set up to cover nursing expenses, nowadays most custodial care ( what LTC is set up to cover) is at people's homes. You buy an LTC policy to be able to stay longer in your home, to keep your options open, and to protect your assets ( your surviving spouse will need them! ).
5. When choosing a LTC policy, you want to look for policies that will not only reimburse for custodial care expenses, but that also will pay x amount of dollars every month to you without invoices.
6. You also want to avoid choosing a daily limit amount of coverage; you want to choose a monthly limit amount. For example, if your daily limit is $50, and if you spend on Monday $100 and nothing the rest of the week, you will only be reimbursed for $50.00. If you had a monthly limit of $1,500, then it would be covered.
7. Call you local nursing home or assisted living facility, and find out how much it would cost you to stay there for one month, for 6 months, for one year. Nowadays, disease and illness do not kills us - we survive, many times with less skills than before ( think heart attack).Review your family history - if there is a history of long evolving illnesses ( Alzheimer) do consider LTC.
8. Find out about the discounts that are available on LTC policies - for example, look into policies that cover two people.
9. Like life insurance, LTC policies are, to some extent for the benefit of your children; without a LTC policy, they may need to take care of you; there will be a financial ( additional expenses, less hours worked, less SS benefits) and emotional strain on them. The "sandwich generation" ( that needs to take care of their children and their parents) should consider paying or helping to pay for the LTC policies of their parents.

Dominique

[Mary Kate]

Another thing that even otherwise intelligent, responsible adults bury their heads in the sand on is wills. I have even known lawyers that do not have wills, despite having families and considerable assets and living in states that would not by default distribute your assets the way you would think.

[Georgia]

Mary Kate - Perhaps I am lucky, or perhaps not. I do not have a will and do not intend to make one. In my state - MO - if you die without a will it goes to immediate family, divided equally. I have 2 children. They will get everything. I do not have enough to go through Probate and their names are on all my checking, savings, insurance, etc. My home will go to them automatically at 50-50.

I also do not have enough money to get hit with any taxes, unless I win the Power Ball Lottery and I rarely enter that. In fact, if I won it, it would go into my checking &/or savings, which already has my children's names on them. Ain't it great to not be so rich!!!!!!

[Old Limey]

People may call me "cheap" but ever since we married in 1956, and emigrated to the USA, my #1 priority has been building up our security against all the many problems that life can throw at you.
We have homeowner's insurance, health insurance, automobile insurance, and an overriding Umbrella policy as well. However I have never thought that LTC insurance was the way to go.
Instead, starting with $400 in 1956, I have built up a multi-million dollar investment portfolio that generates about $275K of tax deferred and tax exempt income annually to supplement our pensions and social security checks should either of us need LTC. The income may well be sufficient but if it isn't then I can start drawing down our principal. We plan to remain in our home if at all possible and hire a live-in care giver if that becomes necessary. Only time will tell what our future holds but I feel that we have done the right thing, saved ourselves a lot of money over the years by not buying LTC insurance, and have all of the bases covered. I also do not give to charities, I believe in the old English proverb, "Charity begins at Home" and feel that our investments are more than enough to see us both through to the very end. If we end up not needing all of our money then, after inheritance taxes, it will pass to our three children.
Whatever happens we certainly will never be a financial burden to the state and country that has enabled us to have a wonderful life.

[Carlie]

What most people fail to realize is that LTC insurance is asset protection. Medicare and medicaid will not cover everything so then retirees are left to drawing down their retirement savings. Using LTC insurance gives the insured a choice to live at home and still have their freedom and finances intact.