When my father was sick, the only option my mom had been to care for him herself, as long as he could stay home. She had no friends or family living close enough to them to help with the daily chores.
When he got too sick for her to care for, her only option was to either use their meager savings or rely on Medicaid to pay for his care.
Shortly, after my father passed, the insurance industry started to offer Long Term Care insurance to help people pay for a bed in a nursing home, who do not like relying on government programs.
In the 30+ years since those early policies arrived on the scene, the insurance industry has evolved.
The traditional Long Term Care insurance policies are still available. The difference is that they cover many more risks today than they did when they first arrived.
Many of the older policies only helped people who need to move into a nursing home. Today, only 7% of those needing Long Term Care need to move into a full-scale nursing facility.
The vast majority of senior citizens are able to function, just fine, if they only get a little help. Most Long Term Care Insurance policies that are sold today not only pay for nursing homes. They also pay for Assisted Living Facilities, Home Care and Adult Day Care.
All of them allow seniors to retain a sense of independence and feeling of dignity while they “age in place.”
Traditional Long Term Care insurance can be quite expensive for people who wait until after retirement. However, it can be surprisingly inexpensive for people who plan ahead.
One famous, TV, financial adviser, recommends that people wait until they are 60 to buy Long Term Care insurance. That is a wonderful suggestion for people who have been able to discipline themselves to invest and save for several decades. They have several hundreds of thousands of dollars to retire with. For them, Long Term Care insurance is a luxury that they can either get or survive without.
Other people have survived with a low-income during their adult years. They have absolutely no retirement savings. Fortunately, there is a government program, Medicaid, that will help them with their Long Term Care expenses should they need help during their senior years.
I know that several insurance agents will say, “every American needs Long Term Care Insurance.” I do not believe that is true.
- Only 70% of people who survive past their life-expectancy will need Long Term Care. That means that 30% of the population over 77 years of age will not need it.
- You will also not need Long Term Care insurance if you will have at least $350,000 if you are single, or $750,000 if you are married, when you retire.
- If you have less than $ 2000 in savings, and a home value at less than $500,000 you will most likely qualify for Medicaid’s help if you, or your spouse needs Long Term Care help in the future.
However, the average American retires with just over $67,000 in savings. If you are an average, middle-class American, you would be advised to consider your options for Long Term Care insurance while you are in your late 40s or early 50s.
The cost for Long Term Care insurance, at those ages, is very affordable. Often it is not any more than people are already paying for Life insurance.
If all the children are out of the house, and there is no longer any need to pay for Life insurance to protect them, doesn’t it make sense to use the money that you were paying to give money to someone else after you die, to give money to yourself to help you preserve your standard of living when you get old?
Today, there are four ways that the insurance industry can help you avoid using your life savings or relying on Medicaid to help pay your future Long Term Care bills.
Traditional Long Term Care Insurance plans are the most expensive plans available. However, they also over the most comprehensive coverages. If you are able to lock-in a plan while you are in your late 40s or early 50s, the premium can be rather reasonable.
However, if you wait until you are over 65 to investigate traditional LTCI, the premiums can be quite pricey.
If traditional LTCI can be likened to a shot-gun, Critical Illness insurance is more like a rifle. It only covers a few, very specific, ailments.
All Critical Illness plans pay a cash benefit when a licensed physician diagnosis you with cancer, heart attack or stroke. Although the money from those plans is typically not enough to pay for several years of care, it can be enough to hire help in your home while you recover.
Many plans also include coverage for things like Alzheimer’s disease, coma, burns, etc. When you shop for Critical Illness insurance, remember that all plans will offer coverage for cancer, heart attack or stroke. Anything else that is covered is at the discretion of your insurance company. Since they try to be different from each other, do some comparison shopping before you buy anything.
COORDINATION OF BENEFITS STRATEGY
Traditional Long Term Care insurance (LTCI) can be quite pricey. However, there is a strategy that will allow you to hold the premium down.
Every LTCI has a feature called an “Elimination Period,” (E.P.). That is a period of time that you must qualify for Long Term Care benefits before the insurance company will pay anything. During the E.P. you will have to pay for your Long Term Care expenses yourself.
Many of the more current LTCI have an optional rider that will waive the E.P. if all you need is help around the house. Of all the options that are available with LTCI, in my opinion, this is the most important. It is often called the Home Health Care (HHC) rider, or words to that effect.
I am using so many abbreviations that I feel like I am writing a report for the government.
Here is where the strategy comes into play. Most insurance companies charge less for premiums when you elect a longer E.P. If you choose a plan with a 180 day, or longer E.P. but has a HHC rider that waives the E.P. if you are able to care for yourself at home, provided you have help, your premium will be lower.
However, if you elect to use this strategy, I encourage you to supplement your plan with a Critical Illness insurance policy if you do not have sufficient money in savings for two reasons.
- Most LTCI plans require a doctor to verify that you will need help with the Activities of Daily Living for at least 90 days. If your recovery from cancer, heart attack or stroke is expected to last only 60 days, you will not get any money from your LTCI. However, your Critical Illness policy will give you the money needed to hire help while you are recovering.
- If you suffer a covered illness or accident severe enough for you to require a lengthy stay in a Skilled Nursing Facility (SNF), the money you get from a Critical Illness policy can be used to pay that bill until your LTCI benefits start.