When You Lose your Independence: 5 W’s of Long-Term Care Insurance
By Joe Delaney
What is LTC? (And what is it not?)
When many of us who are generally healthy think of health insurance, we imagine car accidents or an unexpected, severe illness that requires a hefty hospital bill or expensive medications to treat. We imagine a heart attack, for example, and consider how thankful we will be for insurance if we need open-heart surgery.
But even something as traumatic as a heart attack is still classified as an instance in which acute careis needed, because the condition is temporary. Long-term care (LTC), by contrast, is provided for chronic disabilities that last not weeks or months, but often years. An entirely different type of insurance is necessary to cover them.
Who needs LTC insurance?
Individuals who chronically lack the ability to perform two or more activities of daily living (ADLs) for 90 days or longer or need substantial supervision due to cognitive impairment (i.e. Alzheimer’s or Dementia) need coverage for long-term care. The six basic ADLs are:
As age 65 approaches, your likelihood of needing long-term care, whether at home, in an assisted living facility or nursing home, rises significantly. Almost 70%of people turning 65 will need long-term care at some point in their remaining years.
Where can you find LTC coverage?
Medicareis the first stop for most Americans who are both over the age of 65 and above the poverty line, but it falls far shortof full coverage. Nursing home stays, for example, are covered for a maximum of 100 days but often far less (average is 22 days). Non-skilled assistance with ADLs are not covered. In other words, if you need someone to help you get in and out of the bathtub you will need to pay them by some other means.
Employer-provided health insuranceoften covers limited services for an initial period of long-term care, but tend to have the same limitations as Medicare. These plans are designed to cover acute care services, to help employees get back to work. It is a rare employer who will have the means to fund the extraordinary lifetime expense long-term care incurs.
This leaves private LTC insurance policiesto supplement Medicare and employer-provided insurance.
Why buy an LTC policy?
If your net worth is going to be limited in retirement – say, less than $5M – you must consider the devastating effects of a debilitating event such as a stroke. You may have to pay a skilled nursing facility as much as $300 per day, over $100,000 per year, to receive services necessary for daily living.
From where do these funds come? Usually they are diverted from investments that were meant for some other purpose: to provide security for a spouse, to help grandchildren go to school, to support charities that are meaningful to you.
This is why it’s important to consider a long-term care insurance policy.Unlike Medicare that buys you a few weeks of care, an LTC policy typically buys you years to make a new financial plan in the wake of your loss of independence. You will be able to dramatically slow the fiscal bleeding as you work with a financial advisor to take steps necessary to protect your family’s wealth before the policy period ends.
When should you buy a LTC policy?
Because the cost of a policy is based in part on how old you are when you buy, you should be thinking about this long before you turn 65. In fact, we recommend you start having “what if” conversations with your spouse, your family and financial advisor about this and looking at policy options by your 50th birthday.The primary questions to ask are,
- What kind of facility (in home or other) would I want to be in if something happened to me?
- What is the out-of-pocket cost per day?
Then, sometime well before you turn 65, you’ll be ready to make a confident investment in one of the most important ways to protect your family’s wealth.
The other important consideration is you need to qualify for LTC insurance. Therefore, waiting to get it later may not work if your health deteriorates.
Ready to talk more about this? We’re eager to help.
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