It’s hard to think of ourselves as an elderly person, but God willing, it’s going to happen.
It’s also hard to think of our future, elderly selves, requiring help doing simple things like moving around the house, preparing food and eating it, getting dressed, and going to the bathroom. But this could also happen.
A recent study suggests 70% of people who reach age 65 will require some form of care over the course of their lifetime.
So, maybe you won’t, but what if you do?
Long-term care is a term referring to a variety of services designed to meet a person’s health or personal care needs.
How we address the need for long-term care has changed and evolved a lot over my 20+ years as a financial advisor. It is an often overlooked and misunderstood aspect of our overall financial situations, and certainly an important one.
I want to help you understand the fundamentals of long-term care.
Here’s what we’ll talk about:
- What is long-term care
- Where it’s delivered
- Costs of long-term care
- How to pay for it
- The evolution of long-term care insurance
- How to obtain coverage
- How to use your policy
Let’s get started.
What is long-term care
As I mentioned in the opening, long-term care is a term referring to a variety of services designed to meet a person’s health or personal care needs. These services endeavor to help people live as independently and safely as possible when they can no longer perform basic activities of daily living.
Long-term care itself is the delivery of care.
Long-term care insurance is a form of coverage that pays for that care.
Where it’s delivered
Long-term care can be provided at home, in the community, in assisted living facilities or in nursing homes.
There are a lot of different names for these facilities including but not limited to nursing homes, personal care facilities and residential continuing care facilities.
But here’s the bottom line; it’s best when it’s delivered at home.
Think about the one place you want to be over all other places. Home.
Do you think that will be more or less true as you get older? Should there come a time when you require care, where would you like to receive it?
While long-term care is delivered in a lot of different places, having our loved ones (or ourselves) get it in the home is the best scenario.
Costs of long-term care
Long-term care can be expensive.
The national median cost for a home health aide is $4,576 a month. A brief stay at an assisted living facility will cost at least $4,300 a month and a semi-private room in a nursing home costs over $7,500 a month.
Depending on where you live, these costs can be much higher.
How to pay for it
Doesn’t the government pay for this? No.
This is a common misconception. There are minimal resources available through Medicare for short-term care needs, but none for long-term needs.
There are ways to get support for long-term care needs through Medicaid, but they require people to have limited additional resources. Each state has different requirements for how to qualify.
The bottom line is this; Medicaid long-term care is designed for people with no financial resources.
In many situations, other family members accept the responsibility for caring for aging loved ones. This can carry a significant cost to the care-giver, and I recommend you spend a good amount of time researching the investments it will take to successfully perform this role.
Personal assets and income can also be used to pay for the cost of care.
Finally, you can purchase long-term care insurance to cover some or all of the cost of care.
The evolution of long-term care insurance
When I started my career, I was working for New York Life. The cost of our long-term care insurance product was sometimes twice as expensive than other companies.
The reality was, the total future costs of long-term care was greatly underestimated in the early 2000s, therefore the premiums charged by many companies were far too low.
Over time, all companies had to increase premiums, and the vast majority stopped selling policies all together.
Today, it’s challenging to obtain a “stand-alone” long-term policy. But the need for coverage still exists.
The answer to this need has been “hybrid” coverage in the form of “riders” on life insurance policies and annuities. Simply put, insurance companies have added a long-term care benefit to life insurance policies and annuity contracts.
What this means is you can access funds from these products to pay for the cost of long-term care should you require it in the future.
Should you decide to explore a product like this, please know each product is different and a high level of due diligence is encouraged.
How to obtain coverage
The underwriting process for long-term care insurance is robust and can take several months.
The insurance company will want to review your medical records to determine if you have any existing health conditions or signs of future conditions.
They will review your financial situation to ensure the product you’re looking at will fit into your financial situation.
They will review your prescription drug history.
They will conduct a phone interview and possibly a face-to-face interview. The purpose of this is to gain an understanding of your cognitive health.
The insurance company will assess your overall health, including cognitive and physical.
How to use your policy
You can begin to access the funds from your policy when you’re unable to perform two of the six activities of daily living. The six are bathing, dressing, toileting, transferring (moving to and from a bed or a chair), eating, and continence.
Each long-term care insurance product is unique, so it’s important to understand how you’ll access the funds.
Conclusion
Is it possible you could live a long life?
Is it possible that you could require long-term care?
If you live a long life and require care, how will you pay for it?
Thinking about and engaging in long-term care planning is an integral part of a financial plan.
I commend you for educating yourself about this important topic, let us know how we can more fully support you.
If you’d like to dig deeper into this, check out our The Right Coverage course.
If you’re ready to take control of your financial life, check out our DIY Financial Plan course.
We’ve got three free courses as well: Our Goals Course, Values Course, and our Get Out of Debt course.
Connect with one of our Certified Partners to get any question answered.
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Here is an applicable episode of the LifeBlood podcast
Planning for Long Term Care with Marc Glickman
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