Thank you for sending me your long-term care questions. It is a topic that I have much passion around and unfortunately many people delay having these important conversations with their loved ones, which is a common and avoidable mistake. You want to get in front of the issue and figure out how you or your loved ones will be cared for before you (and they) actually need the assistance.
PLEASE NOTE: I do not know the details to each of your situations and may not be licensed in Long Term Care in your state. These are general answers to questions received and should not be taken as direct advice on your individual situation. Answers are only my opinion on a general question. You should always consult a licensed financial professional in your area.
Saving for your retirement is really important, and part of planning for retirement is also planning for the uncertainty of a long term care need. You can save diligently and run out of money due to needed care that was not planned for. The “sweet spot” for LTC insurance is in your 50’s. Unfortunately, a long term care event is not just for the elderly. A need could arise due to a long term illness or an accident. As a single person, I believe the need for this type of insurance is really important. It shouldn’t trump your retirement savings but needs to be considered a part of it.
Long term care is generally looked at in your 50’s. Unfortunately, an accident or an illness can warrant its need much earlier. If you have a life insurance need, you may want to consider a company that offers a Long Term Care rider on the life insurance policy. This would allow you to use some of the death benefit for a long term care need, which is a great way to address several concerns/needs in one policy for those younger than 50.
How wonderful that they are in their 80’s and feeling good! It is hard to address money issues in a family that has not had open conversations about money, but with a little patience you can get them to open up. If you’re comfortable doing so, I would sit down with them and let them know that you would like to understand their financial situation as it pertains to the need for long term health care. I would also ask about their estate planning wishes and if there are good documents in place. I know this will be uncomfortable and I assume you have a good relationship with them. I work with families daily that put off these conversations, and it causes YEARS of work for the surviving children. Let them know that even though this is not a comfortable topic, it would really help you to know what their wishes are so you can honor them. You are seeking to understand out of a place of caring, not greed.
I too have LOTS of insurance, but I have also been working with clients for 23 years and have had many claims on LTC policies. I have had mine since age 39 and would not miss a payment. It is getting harder and harder to get and the cost continues to rise. The cost depends on where you live and the type of care you may need. At this time, the average cost of LTC is about $250 a day or $91,250 a year (and that is on the low side for many large cities). According to the American Association for LTC, 50% of people who buy LTC policies prior to age 60 claim on those policies. The current average stay is 2.5 years, and can be much longer with dementia. If you are going to set aside retirement money for LTC, I would personally make sure I had at least $500k in today’s dollars. It is not just the cost, it is the coordination of care (which is exhausting if you have had to do it). A good policy would help with that as well. Statistically, a long term care need may cost you far more than a car crash and maybe even more than your house burning down, but we all insure for those possibilities!
If they qualify for Medicaid, I would allow the system to provide the care. It is a tough system to navigate and you will have to really be their advocate. You will not help them by sacrificing your retirement because now who may be put in a position to help you in your retirement or with your long-term care needs – your kids. Any money you give your parents will offset benefits. Show your love by being their advocate in a burdened system where they could fall through the cracks.
Long Term Care insurance is generally purchased on a daily rate bases. For example, you buy a policy that covers $250 a day, up to a total of 1,825 days/5 years. Most policies have a “pool” of money and you may have more days if you do not use the entire $250 a day. Many times care is more custodial at first and then goes to more skilled care so benefits can last longer. Every company does its own underwriting, and there are many reasons that policies are denied. In most cases, it has to do with a history of something that traditionally will cause a LTC need. Examples include but are not limited to: diabetes, arthritis, cancer, heart conditions, and foot problems. When the policy runs out, you will need to use your assets to continue care. Some states have a “Partnership” agreement that provide asset protection if the policy holder’s benefits run out and they need Medicaid assistance. Be careful, not all states offer this and even in the states that do, you need to have a policy that has been written in Partnership with the right benefits.
According to the American Association for LTC insurance, the average stay is 2.5 years. If you are single, it is higher at approx 3.5 years (no spouse or children who may start as the original caretaker until the level of care required exceeds their abilities). Typically, there is a 90 day waiting period for benefits, so plan on paying out-of-pocket initially. I would research your area for cost associated with long-term care. I would base the amount and type of coverage on those anticipated costs. It’s important to remember that these costs are increasing yearly, and I believe it is important to have a COLA on the benefit to “keep up” with inflation in this area.
When my father-in-law was in need of LTC and financially qualified for Medicaid, we worked in our local community to find several services for the elderly that provided some assistance. He was also a veteran, and we received some services through the veteran’s hospital. It took hours of research and advocating on his behalf, but there may be community programs that can help offset your costs. We still had to step in financially at times, but the resources we found in our local community were invaluable.
As you can see, long-term care is complicated and I cannot foresee it becoming easier as our population continues to age. It’s also important to note that Medicaid is run by the individual states, so you want to make sure that when you assist your parents (and yourself) that you follow their state’s program rules. An elder care lawyer and financial advisor located in the state where you (or your parents) live can be also be a huge asset and help you create a long-term care action plan.
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SHANNON RYAN, CFP®
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