In recent years, politicians, pundits and the press have stressed how expensive Long Term Care insurance (LTCI) can be. They have successfully scared the American population and LTCI is often considered a luxury that is only available for the wealthiest Americans.
Ironically, the wealthiest Americans often do not need LTCI. If they get sick and need care during their golden years, they can afford to pay for it.
Also, the very poor do not need LTCI. If they get sick and need care during their golden years, they can qualify for help immediately from Medicaid.
The people who need LTCI the most are middle-class Americans. As a rule they have incomes or savings that are large enough to disqualify them for any help from Medicaid but not enough to pay to hire a home aide or rent a room in an assisted living facility or nursing home.
In this post I want to propose a strategy that will allow middle class Americans to buy affordable LTCI.
BUY EARLY IN LIFE
I do not want to lie or deceive you. I will leave that up to the politicians.
The fact is that most of the scary premiums you hear are for people who have waited until they were significantly older than you before they bought LTCI.
One of the criteria that insurance companies use when setting premium is your age. They must collect enough money from you to pay for the anticipated costs of your Long Term Care before you get sick.
Logically, if you get your policy when you are 50 the insurance company can collect premiums from you for 20 more years than if you wait until you are 70. Since they have a longer time in which to collect the money they need to pay your Long Term Care bills, your premium will be significantly lower.
A policy whose premium is $400 a month at age 70 could only be $100 a month at age 50.
Everyone has a different idea of when the best time is to purchase LTCI. Some people think that it is better to wait until you are already retired.
Nationally known TV financial planner, Dave Ramsey, suggests that you consider buying LTCI at age 60.
That sounds like good advice on the surface. However, there are three things to consider if you are going to follow his advice.
- PRE-MATURE NEED – My father was 53 when he had to go into a nursing home. The advice of waiting until he was 60 to get LTCI would have been bad advice for him.
- MEDICAL UNDERWRITING – Whether the politicians like it or not, LTCI is still medically underwritten. It is not a guaranteed right. Those people who wait until they are 60 but get sick during their 50s will not be able to get LTCI. In recent years it has become harder to get people medically qualified for Long Term Care insurance. The last 3 LTCI applications I submitted were for people who had already retired. They were all declined for medical reasons. The best chance of qualifying for LTCI is to apply when you are in your 50s and still healthy.
- FULLY UNDERSTAND HIS PLAN – The strategy he proposes has two parts. If you do not invest the premium, as he suggests, the strategy does not work. His strategy reminds me of the Life insurance strategy, “Buy term and invest the difference,” that was so popular when I first started in insurance. It makes perfect sense. Unfortunately, experience shows that people tend to ignore the investment part of these strategies.
If you have enough self-discipline to invest that premium and are willing to retain the other two risks, his strategy makes perfect sense. However, if you do not have a sound investment plan or are not willing to assume the other risks, I encourage you to start looking for LTCI during your 50s.
As far as I am concerned, the optimum age to buy LTCI is 1 day before you start showing symptoms of your inability to perform Activities of Daily living. Unfortunately, none of us know exactly when that will be. We have to use other data to help us make our decision.
If the criteria that you use is premium, my advice is to get a LTCI policy as early as possible. The younger you are when you buy your policy, the longer your insurance company can count on you paying premium. Your monthly premium will be lower.
AVOID COSTLY RIDERS
The cost for a basic LTCI policy is much more affordable than most people think. In many cases the premium for a basic LTCI policy is no more expensive than what people are already paying for their Whole Life or Universal Life insurance. The biggest difference is that the Life insurance policies pay their full benefit when you are dead. The LTCI policy is designed to pay you money while you are alive to enjoy it.
The basic cost is not the only thing that causes LTCI premiums to climb out-of-site. Every policy offers you options to customize your plan.
The options from which you can choose may differ from one insurance company to the next. You owe it to yourself to make an informed decision.
The one thing that is constant from one insurance company to the other is that most of your options are going to come at a cost. Your premium will increase with each option you elect.
I know that you will want all of the “bells and whistles” that your insurance company offers but if there is one thing that I have learned in 25 years of working with insurance it is, “Wants and needs are not always the same thing.”
My recommendation is for you to only choose those options that you really need if your goal is to hold your premium down.
CHANGE YOUR MINDSET
In the past LTCI policies were bought by people who were concerned about paying for nursing homes. In recent years that mindset has been replaced.
Statistics show that less than 10% of people who need Long Term Care go into a nursing home. Over 90% of people who use Long Term Care get care either at home or in an Assisted Living facility.
That is actually a positive trend. According to the 2012 Genworth Cost Of Care survey, the average daily cost for a semi-private room in a nursing home in my state is $130. The average daily cost to hire a Home Health Aide to take care of you in your home is only $113. The daily cost for Homemaker Services is even less.
If your goal is to save money on LTCI, my advice is to change your mindset. Rather than assume the worst and buy LTCI based on the cost of a nursing home, assume something less than the “worst case scenario.”
Base your benefit on the chance that you will be able to stay in your home as long as you are able to hire a Home Health Aide or Homemaker. If the worst happens to you and you do require a nursing home, you will be in a better position with a LTCI policy than you would be without one.
Medicaid requires you to “spend down” your life’s savings on Long Term Care expenses until you qualify for help. If you use this strategy and end up in a nursing home, you will not have to “spend down” your savings as fast as if you relied on Medicaid alone. The money that you had set aside for Home Care can be used for your Nursing Home bill. You will just need to pay the difference out of your life’s savings.
If you elect to use this strategy, pay special attention to three things.
- Most LTCI plans only pay a portion of the nursing home benefit for care provided at home. When you set up your plan make certain that your Home Care benefit is the same as your Nursing Home benefit. It may cost you a little more but it is worth it.
- Most insurance companies offer a rider that will waive the Elimination Period for Home Care. The cost of that rider is normally very inexpensive. Of all the options that will be made available to you, the Home Care Waiver is the most valuable. Make certain you elect that option if you are using this strategy.
- Often Home Care is only paid for by your LTCI policy if you follow your insurance company’s rules. Many LTCI policies will pay for the services of a Care Coordinator as part of your basic plan. The job of the Care Coordinator is to make certain that your care is within the rules of your insurance company. Make certain that you understand exactly what is expected of you before you need to make a claim.
Yes, if you try hard enough you can find LTCI policies with premiums that cost several hundreds of dollars each month.
However, if you do some savvy shopping, you should be able to find a LTCI policy that is affordable.