What If You Need Long Term Care?
Long term care (LTC) is a part of retirement planning, but it’s surely not as fun and exciting as planning vacations or taking up hobbies. Twenty years or so ago, Radon worked exclusively with long term care policies.
Back then, people often asked:
- What if I need long term care?
- How do I pay for it?
- What are my options?
One of the biggest topics today is the policies people took out in their 40s and 50s are having their prices increase. When signing up for policies, insurers do mention that the rates for premiums can rise, and it’s something that we’re seeing happen right now.
Many of our clients receive a notice in the mail that their premiums are rising 50% or more, but there’s usually a list of ways to offset these costs by cutting benefits.
Unfortunately, people who receive these notices are already in retirement and it’s just too costly to switch plans. The older you get, the more you’ll pay for this type of insurance, and it leads to a person feeling almost forced to pay the higher rates.
We also have people come into our office who mention long term care and do not want to go the typical insurance route because premiums are always rising.
The goal of this article (you can listen to the podcast here) is to:
- Outline your options
- Explain how long-term care works
- Things to think about when considering LTC
If you’re trying to secure your retirement, you need to have something in place for your future long term care needs.
What are the Risks and Numbers Surrounding LTC?
LTC is costly, and it’s something you need to consider in the same way that you do a mortgage or car loan. You need to learn the numbers and care options that you have available so that you can feel more comfortable with the idea of long-term care.
As of June 2023, we know that:
- 69.6 million baby boomers are alive right now
- Around 70% of Americans 65+ will need some LTC
Considering these figures, there’s a good chance that you or your spouse will be in an LTC situation during your lifetime.
We know that the cost of insurance is high, and this is because LTC is expensive.
How expensive?
- In 2021, the private-room nursing home costs were $108,405 annually
- In 20 years, the costs are expected to be $195,791 annually
If you’re fit and healthy now, it’s difficult to imagine that one day you may need to cover these costs either through insurance or out of pocket.
The average LTC stay is 3.5 years, so just think about having to pay $379,000 – $685,000 to cover your care. Some people are in long term care for memory care, and they don’t have any other medical issues, so they can be in a care situation for even longer.
What is Long Term Care?
Go back 20 years and there was nursing home insurance. Then, home health care started to pop up. Long term care itself is more than staying in a nursing home. My mom right now is in assisted living because she’s able to do much of her everyday routine on her own.
However, she needs assistance in some of her Activities of Daily Living, which is something that falls into one or more of six main categories:
- Bathing
- Dressing
- Continence
- Eating
- Toileting
- Transferring (getting in and out of bed, etc.)
Insurance policies start to kick in when you need assistance with at least two of the activities of daily living. A doctor will determine that these activities are difficult for you, and you can go into long term care.
However, if you have a little issue with bathing and dressing, you may want to go into what’s known as assisted living.
Assisted living allows you to have someone close to you to help you with your activities of daily living and then progress to greater care in the future if you need it. Assisted living also allows you to maintain your independence for as long as you can.
Even assisted living is quite expensive.
Costs for homemaker services (someone who helps with food and bathing), and a home health aide both have different costs. Annual costs for these are:
- Homemaker Services Home: $59,488/annually at 44 hours a week
- Home Health Aide: $61,776/annually for 5 days a week
- Adult Day Health Care: $20,280 per year
- Assisted Living Facility: $54,000 per year (private room with one bed)
- Nursing Home Semi-Private Room: $94,900/annually
- Nursing Home Private Room: $108,405/annually
These are hefty numbers, but the super high expenses come from the nursing home part of long term care.
If you’re freaking out, let’s discuss your options for LTC.
Long Term Care Options
LTC is expensive and a major concern when you’re trying to secure your retirement. You can opt to:
Self-insure
If you have the assets, you can self-insure, where you pay for these costs out of your own pocket. This may bring about some anxiety for you and there are pros and cons to consider:
- Pros: You’re not transferring assets to an insurer and can avoid premium rate hikes.
- Cons: You’re taking on the risk of not knowing what LTC will look like for you or how long you’ll need it. Can you afford to self-insure?
Self-insuring changes drastically, as you’ve seen from the 20-year projection. We help our clients visualize by using questions and scenarios where we determine how much the LTC will cost and how much will be left for your survivors.
Many people do not want to deplete their assets to the point that their survivors will struggle.
Medicare
Medicare does not provide what is known as “long term care insurance.” However, the first 20 days of a stay in a rehab facility are covered. For example, if you fall and need rehab, the first 20 days will fall into this category.
Day 21 – 100, the coverage will require an expensive copay.
After the 100-day mark, there is no coverage available.
Medicaid
Medicaid is a government program for low-income folks or people without assets. If you fall into this category, the pros are that you can get the care you need. Any money that you do make will go to the facility, but anything above what you make in “income” will be paid by Medicaid.
For example, if you receive Social Security, your check will go to the facility to cover as much of the bill as possible.
The total assets that you can have on Medicaid are very low.
Qualifications for Medicaid vary from state to state, and there’s not an easy way to get into the program. You can get assets out of your name to qualify, but you can’t just give everything to your kids or play the system in this way.
Traditional Long Term Care Insurance
Traditional LTC insurance is the one that most people are familiar with. You pay for insurance and if you don’t use it, you lose it. You pay an annual premium that is put towards a policy that will kick in if you need help with two or more activities of daily living.
Insurance will reimburse you daily based on the amount that you built your plan around.
Perhaps you receive $300 or $400 a day to cover costs. The plan may:
- Increase based on inflation
- Limit the length of coverage
If you transfer more risk to the insurer, you can be confident that you’ll pay more for your long-term care premiums.
LTC does take the risk out of the hands of the 70% of adults who will end up in this long-term care plan. You’ll pay for this insurance, and you may never need it, which is a concern. We’re also seeing annual increases in LTC, meaning that premiums will jump substantially.
Underwriting and qualifications are required to be approved for your insurance.
Much like your homeowner’s insurance, if you never use your long term care insurance, the money you put into it is never returned. This brings us to the next couple of categories and things to consider.
Asset-based LTC Insurance or a Life Insurance Policy Combined With LTC
One of our favorite options is the combination of life insurance and long term care insurance.
Why?
It allows you to:
- Take money from the policy if you need care
- Leave the remaining balance as life insurance to the beneficiaries
Your premiums go into an account of sorts. You can use the money for your LTC, and your premiums do not disappear. Premiums are fixed and will not go up. You can pay in cash and fund the premium in one lump sum.
Some plans also allow a 10- or 15-year pay period to fund the account.
Underwriting is necessary to qualify for these plans, but with just a few questions, we can help you understand if you qualify for this type of insurance or not.
Riders
There are long term care riders you can attach to your life insurance.
When you add a rider, it adds an option to have LTC insurance and your premiums for the rider are fixed. The drawback of a rider is that premiums are not tax-deductible, and you’ll need to pay more on top of your life insurance premium for the rider.
Chronic Illness Rider
A chronic illness rider is very similar to a normal rider, but it’s for chronic illnesses. You can use your benefit payments for things limited to chronic illness, or a non-recoverable illness that you have.
Asset-based Long-term Care Through an Annuity
With this LTC option, you’ll attach the long term care benefit to an annuity that you have. This is a special annuity that can double or triple. For example, you put $100,000 into an annuity and it will add $200,000 or $300,000 for your care needs.
You have leverage and do not need to pay premiums because you fund it upfront.
If you want, you can even take money out of the annuity, although it will reduce the amount of money that you have for LTC if you ever need it.
We find that it is convenient for our clients who are above 68 years of age because there is baseline underwriting, but it’s not as strict. You also don’t need to worry about premiums rising, which is perfect for anyone who is in retirement and on a fixed income.
Income-based Annuities Asset Doubler
The final option for long term care on our list involves income-based annuities. A doubler kicks in when you can’t perform two of the six activities of daily living and will double your income for a certain number of years.
You don’t need to qualify for a doubler and it will provide you with additional cash flow for a certain period of time.
We do have a great resource available that breaks down everything we’ve just talked about and goes a bit further into the pros and cons of each option that we mentioned.
Please reach out to us if you would like us to send you this document.
Click here to request our document covering all of this information in greater detail or schedule a call with us if you want help going through your own long term care options.