Is long-term care insurance the right decision for you?

Are you confused about Long Term Care Insurance?  We are.  So we asked two experts to try to help us get to the bare bones of what it is, what it covers, should we buy it and who should buy it.  Mike Robinson from United Way and Robert Johnson of New York Life agreed to give us a look at this often ignored insurance.

Mike Robinson: Maybe but there are other options

Getting the help you or your parents need can put incredible strain on family members who feel an obligation to lend a helping hand. If voluntary care is unavailable, paying for that help can decimate your savings accounts very rapidly. Contrary to popular belief, Medicare does not pay for long-term care in the home or at assisted living facilities. The federal insurance program for seniors pays for care only in the first 100 days after a three-day hospital stay.

Starting in the 1980s, long-term care (LTC) insurance policies have been available in the private market to meet this need. However, these insurance policies have been widely criticized for being unnecessary and overly expensive.

The most obvious and compelling reason for purchasing long-term care insurance in your 50s or 60s is protecting your nest egg. Because Medicare does not pay for long-term care, the only public program left to offer assisted-living coverage is Medicaid. To qualify, you’ll need to spend all but a few thousand dollars of your own money on home care. In fact, recent changes in the federal law make it difficult if not impossible to give your money away to family members in the five years before you require long-term care.

Along the same vein, purchasing long-term care insurance allows you to make more choices about your care than Medicaid does. This is true because only some nursing homes and assisted living facilities accept Medicaid patients, and those that do accept it offer a limited number of beds. That can mean being stuck in a facility that falls far below your current standard of living. If you do have a current LTC policy, it could help you stay in your own home longer because you can choose which providers to hire. For that reason, these policies are sometimes known as home care insurance.

The last major benefit of this type of insurance has to do with inflation. Standard policies come with inflation riders of between 3 and 5 percent annually, so you and your fortune will be protected as health care costs increase over the years.

Paying large sums of money for care that you never need or receive is the biggest criticism of LTC policies. Premium costs can be especially harmful for seniors who don’t have significant assets to protect. On average, the premium for one year of long-term care insurance is about $1,000 for an individual in his 50s. By a person’s seventieth birthday, that price will shoot up to $3,000 or more per year. Therefore, a healthy 55-year-old man who purchases a policy will have invested $25,000 or more by the time he turns 80. His daily benefit may be only $160, so it would take more than five months to see any kind of return on the policy.

Alternatively, he could put that $25,000 in a retirement investment account and pay for long-term care with dividends and interest. In the end, he would still have the original money for either himself or his estate.

Another criticism of long-term care insurance is that many people are unable to pay high premiums after retirement although they could afford them while working full time. For these people, thousands of dollars paid in premiums will be totally wasted because their policies are cancelled for nonpayment after they retire.

The last of the major criticisms leveled against insurance for long-term aid is that these policies are often difficult to understand. This can lead to seniors buying policies they don’t need and can also mean a lot of hassle when the time comes for benefits to be administered.

Mike Robinson is Senior Vice President of Planned Giving for United Way of Pierce County.  Please consult a qualified estate planner before making a gift in your will.

Robert Johnson: It’s complicated.  Get help.

You probably know someone who has needed long-term care. Maybe you have witnessed a family member, friend or colleague struggle with the emotional and financial issues that can come with a long-term care experience. The truth is, no matter when the need arises, because of age, disability, or because of an unexpected illness or accident, long-term care can affect any age group, any social strata, and any geographic location. But what is it and how can you plan for it?

Long-term care is help you may need due to a lengthy illness, an unexpected injury or accident, or a severe cognitive disorder such as Alzheimer’s disease. It’s assistance with the everyday tasks or the activities of daily living (bathing, eating, dressing, toileting, transferring, and continence). Long-term care may be provided in a variety of locations, from nursing homes and assisted living facilities to adult day care centers and even your own home.

Most of us strive to live active, healthy lives well into our later years, and indeed as a society, American are living longer than ever before. This extended longevity is one of the things that drives the growing need for long-term care – the longer we live, the greater the odds that we may need long-term care services. It is predicted that in the year 2020, some 12 million older American are expected to need long-term care.
While the majority of long-term care services are provided for seniors, a surprising amount of long-term care services are provided to younger people. In fact, the U.S. Government Accountability Office estimates that 40 percent of the 13 million people receiving long-term care services are between ages 18 and 64.

Long-term care can be expensive, financially and emotionally. An unexpected need for long-term care can have a significant impact on a family’s assets and lifestyle. Close to one-fourth of all nursing home costs are paid out-of-pocket by individuals and their families.

Many people mistakenly believe that their health insurance will cover the cost of long-term care.

Long-term care insurance can be a very smart way to address the challenges from a long-term care need. Long-term care insurance can help pay for nursing home care, as well as a variety of home and community based care services. Long-term care insurance may not be for everybody, so if you are considering a policy, read it carefully and be sure to work with an insurance agent who understands long-term care issues.

With long life comes long-term planning.  Make a plan for you and your family today.

This educational third-party article is being provided as a courtesy by Robert Johnson. For additional information on the information or topic(s) discussed, please contact Robert Johnson at (253) 306-1422.  Johnson is a Registered Representative for NYLIFE Securities LLC, member FINRA/SPIC, a Licensed Insurance Agency at 1201 Pacific Ave, Ste. 1600, Tacoma, WA  98402.