Long Term Care Coverage
The bulk of the country’s 76 million baby boomers will soon reach age 65. The Federal government estimates that 60% of them will eventually need some type of long-term care. Unfortunately, only 7 million (about 10%) actually have a policy to cover those costs.
One reason the public has not purchased a policy is because they are complicated. The typical policy has dozens of options and add-ons that can make for hundreds of permutations. The insurance industry has started a massive simplification of basic policies.
Another reason for not moving ahead with a policy is the good ol’ human trait of … procrastination. Many people wait until the horse has left the barn before closing the door. That is, they wait until later in life to buy the policy when they may not be in good health. Recent statistics show 20% of the applications from clients aged 60-69 and 42% of those aged 70-79 are declined. What is the solution …? Buy a policy when you are young and healthy, say at age 40-45.
The average nursing home (or at home care) costs $8,000/month or $100,000 per year. Assume a basic policy, at age 40, costs $500 per year and you pay it until age 90 (50 years). Then, your total cost over your lifetime would be $25,000 ($500 x 50). Do you realize at today’s cost of $8,000 per month that in 3 months you would spend the same amount as you paid for your lifetime premiums. ($8,000 x 3 = $24,000) The decision to buy a policy is a layup with a ladder, or, a stolen base on a wild pitch.
Why even consider a long term care policy? Everyone needs to be concerned about the quality of Medicaid-funded long term care. With the Medicaid system in sever financial strain and no solution on the horizon it is obvious that care will diminish. The system is underfunded.
Some people tell me that they will self fund their long term care needs. Costs today are running $100,000 per year and rising 14% annually. Some people need long term care coverage for 10 years. Do you have “loose change” of 1.5-$2 million to handle these long term care costs for one person?
As I have written many times in this blog the new Federal rules for transferring your assets to obtain Medicaid are super tight. Thus, this can be an option only if done 6-10 years in advance of the need.
Are there alternative ways to fund long term care coverage? Yes. See your financial advisor TODAY to develop some strategies.
In general, here are a few ideas and tips for buying long term care insurance (LTCI):
- Buy young, when premiums are less expensive
- Women are more likely to need LTCi as 72% of nursing home patients are women
- Avoid lifetime coverage to save on your premiums
- Buy joint spousal coverage
- Set up a side business and have your business pay the premiums. The premiums are a tax deductible expense
- Buy inflation protection. (Compound inflation rather than simple inflation)
- Avoid future purchase option riders
- Examine new lifetime benefits life insurance that pays for your needs when you are alive, not, after you die
I implore you to examine this area. I have seen emotional strain and financial strain of long term care costs demolish a family.