Making Financial Sense Of Long-Term Care Insurance

Although the time may feel like it’s far off in the future, all of us will eventually have to come to grips with the need to plan for our long-term care medical needs. As medical interventions are extending life expectancy even for those with serious medical issues, more and more people will need care at various levels. And although we tend to think of this as something needed at the end of our lives, a life-threatening accident or an unexpected terminal illness diagnosis may happen at any time.

Even if you personally do not need services, there may be people you love or are close to, those you work with, and even others who may reach out to you and ask for your help. It could be assistance with planning or with finances, being a healthcare proxy, having durable power of attorney, or providing the actual physical care they need.

In the past, when multiple generations lived under the same roof or in close proximity – the same neighborhood or town – people could be cared for within the home by family members with perhaps some additional support. (Doctors also made house calls!)

Right now, in 2022, we are in a real crisis. Very few people will do the menial tasks of taking care of people daily. There are fewer people available as home health aides to assist with the activities of daily living, including dressing and bathing. Our nursing homes, skilled care facilities, and assisted living complexes are understaffed. For any kind of care, there may be long waiting lists.

At the same time, costs for care are increasing.

Demands on assistance programs are increasing exponentially – particularly in the era of COVID. States rely on Federal funding for the Medicaid program, and there are not sufficient dollars in the budget. Medicaid is the program through which many people qualify for medical assistance and long-term care support. Each state must decide how to allocate these precious funds. This limits the care that people will be able to receive through this benefit.

Even if you have savings or other equity, depending on the level of care needed, those resources may not last long. Medicare does not cover long-term care expenses. Medicaid is only available when you have exhausted those resources, and may therefore leave you without the ability to cover daily living expenses. In many cases, only the very wealthy can afford to pay privately for the type of care they need or wish for with their own funds or some high level of long-term care insurance.

Folks who have no home ownership or could not save a lot of money, and who therefore live a basic lifestyle, would be heavily reliant on the Medicaid program. These folks and their families would have few if any options for how their long-term care needs would be covered.

The middle to upper middle class might get some assistance, but they would be required to forfeit most of their assets, except the family (primary residence) home, while care is administered to the patient/beneficiary.

If you need to provide the care yourself, what you may be asked to provide may not always be fair or equitable. In families, the sibling that lives closest to an aging parent may be expected to take a primary role. One who works at home or with flexibility in their job situation may be in the best position to provide care, but that responsibility may be burdensome. People with greater financial resources may be expected to shoulder more of the expenses. At the same time, any legacy that loved family members were counting on might diminish or evaporate. No one would know in advance if that situation would occur.

At work, company resources may need to be reallocated to provide for a valuable employee or partner. Arrangements will also need to be made to cover what work will no longer be accomplished by the person needing care.

Rather than relying on assets that may be insufficient or the limitations of Federal or state assistance, long term care insurance is a very viable and important alternative. You do not need to have a high income to be able to afford a policy, and this insurance can help stave off the requirement to dispose of countable assets so the beneficiary could qualify for Medicaid.

All long-term care policies will have three basic components to provide coverage for:

• Skilled nursing care

• Assisted living facility care

• Home care

Benefits will be “triggered” by beneficiaries being unable to take care of themselves or having a diagnosis of mental deprivation such as dementia or Alzheimer’s.

Of course, you’ll want to know the answers to the basic questions: “How much does a policy cost?” or “What is the best policy available?” These are only the start of the conversation.

The insurance company needs to know your health and financial status in-depth, and other factors including third-party notification, your healthcare proxy, and durable power of attorney. To qualify for the right policy, the insurance company takes into account your current and anticipated future income levels, your financial assets, and your current health status including any medications you take and diagnoses you have received. They will consider

Your savings and assets, including your family home and additional property owned

Life insurance owned

Your attorney, estate planning you may have done already, and your accountant with work they have done for your family, including any business interests.

This is data that the insurance companies use to qualify you for the terms of the policy, including the amount of coverage and the premiums charged.

Why do they need it?

The insurance company is making an investment in your future, and they do so by assessing their risks.

By law, the insurance companies are required to set aside funds to cover the full terms of each policy. For example, if you purchase a policy with coverage of $10,000 per month for 6 years, the insurance company must set aside the total of $720,000 immediately, as a guarantee that they can fully fund claims against the policy. If you have a policy with inflation benefits, as we recommend you do, those amounts are also increased each year, with the specifics determined by your individual policy.

Because of the upfront financial commitment to the long-term care insurance policies that they write, insurers require that you will be financially able to continue to pay the premiums of the policy going forward. The specifics of your policy are governed by the regulations in the state of your primary residence.

So, although these questions may feel intrusive, providing this information is considered as another way of investing in your future. Long-term care insurance will help you protect your quality of life and your assets, as much as possible with careful planning, as well as to main benefit to help provide the care that you or a loved one needs.