Long-Term Care

What is Long-Term Care?
Long-term care is an array of medical and support services for people with degenerative conditions (e.g. Parkinson’s), prolonged illness (e.g. cancer), a cognitive disorder (e.g. Alzheimer’s), or who are unable to perform two to three activities of daily living (e.g. bathing, continence, dressing, eating, toileting, transferring). This assistance can be provided through a nursing home, home health care, an assisted living facility, or adult day care.

Who’s Might Want Long-Term Care Insurance?
Individuals ages 50-70 who are relatively healthy and have assets worth protecting might want to consider LTC insurance. Also, individuals who have a family history of Alzheimer’s, Parkinson’s, cancer, and even longevity might want to discuss this form of insurance with a financial consultant.

Why buy it?
People are living longer. Americans 80+ are the fastest growing segment of our population, and those 65 and older have a 40% chance of entering a nursing home. (Footnote - 1) Medicare is not long-term care. It provides care for up to 100 days and only if the care is needed following a hospital stay. It usually does not cover home health care. Medicaid is available only after full spend down and does not allow a choice of facilities. Medicaid is, in essence, welfare, and the Medicaid facilities may not be where you would want your mom to stay.

What does it cost?
The average cost for one year in a nursing home is approximately $60,000. With the average nursing home stay at two and a half years, this stay would cost around $150,000. (Footnote - 2) The average policy premium for a 60-year-old couple applying for $150/day, five years of coverage, 90-day elimination period, and compound inflation would be $2,050 each. If that same individual owned that policy for 15 years before needing benefits, it would take him/her just 100 days of care to recoup their premiums and break even.

What to look for in a policy?

1. Financial Strength -- Most benefits are not needed from a policy for 10 to 20 years after issue, so you need a carrier that has the financial strength to be around in 20 years. Good questions to ask are how long have they been in the LTC business, what are their ratings, who are they endorsed by, and have they ever had a premium increase.
2. Adequate Daily Benefit -- Be aware of the cost of care in your area or the area where you plan to retire.
3. Inflation Protection -- Cost of care has been rising at an average rate of 5-6% a year. (Footnote - 3) Make sure the benefit you buy will be sufficient when it is needed in 10 to 20 years by buying inflation protection. Suggestion: Try using compound inflation up to age 68, simple inflation from 69-74, and no inflation from 75+.
4. Comprehensive Coverage -- Make sure the policy provides coverage in the variety of settings in which you are interested (e.g. home care, adult day care, etc.). Also be sure that the benefit period is adequate; the average stay in a nursing home is two and a half years.
5. Stable premiums -- LTC carriers have the right to raise premiums. The policies are guaranteed renewable, which prevents a carrier from singling out individuals for rate increases, but they may raise premiums for a class of policyholders. Be careful of carriers that are priced substantially below the competition. Again, ask if the proposed carrier has ever increased in-force premiums.

1 Source: www.mrltc.com.
2 Source: MetLife Mature Market Institute, MetLife Market Survey of Nursing Home & Home Care Costs, September 2004.
3 Source: Marcell, Jacqueline. “Elder Rage: Why Long-Term Care Insurance is Important” www.consumeraffairs.com.

 

T. Vance Walker, AWM, LPL Financial Advisor, Director of Investment Services
904.475.8261 | 800.443.2664 | email vance.walker@lpl.com

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