Long Term Care

Are you a retiring baby boomer?  Are you one of the thousands of baby boomers who will turn 65 every day for the next 20 years or so?  If you are in retirement or nearing retirement it is likely you may be concerned with long-term care (LTC).  It is a known fact that nursing homes are very expensive in the present and like everything else in today’s market the price will not likely be going down.  And do not count on Medicaid to provide much comfort as their benefits do not start until you have expended all of your assets in many cases leaving a spouse with very little.  Ten years ago the main players in the LTC market seemed solid but one look at the same market today shows very few of the companies that provided LTC are still providing policies.  And those who are in the LTC market are scaling back benefits, making their eligibility stricter, and charging higher premiums.  And women are seeing the largest increases in premiums in today’s marketplace.

People who are in their mid-40’s and even into their 60’s do have some options when it comes to LTC.  It is true that the premiums paid for LTC will be lower the younger you are but that also means you will be paying the premiums for a longer period of time.  If you are a prudent saver and are consistent with your ability to save you can figure out what the premiums would be for a LTC policy when you are younger and simply invest those funds in something relatively safe that will give you decent returns such as an index exchange traded fund.  Remember the insurance company is taking your premiums and investing them for the same period of time but unlike you they have restrictions placed on them as to how they invest your premiums.  This combination of your premiums and their expected return is what will fund your LTC in the event you need it.  So if you are younger why not self-insure and take the amount you would pay in premiums and invest the money yourself.  Provided you can get a return as good if not better than the insurance company you will have enough money by the time you retire to pay for any LTC you may need.  And in the event you do not need to go into a LTC facility you will leave your loved ones a nice legacy as the money you would have paid to the insurance company is your to leave behind and not lost to pay the insurance company.  However, this strategy will only work if you are diligent in ensuring you save the money and get a decent overall return.  This is a good strategy for someone who is in the 20’s or 30’s as it will give them in most cases 30 plus years to accumulate funds.

For those who are in the 40’s or later LTC insurance may be a better choice as the amount of time you will have to self-insure is considerably less.  But depending on the insurance company and type of policy you decide to buy will determine what your premiums will be.  The longer wait period you have between being admitted to a LTC facility and when the insurance company starts to cover the costs will greatly influence the amount of your premium.  The longer you delay the insurance company in what they will pay means lower premiums for you but greater out of pocket expenses.  Also if you decide to buy the inflation protection rider that will increase your premiums as well so you need to consider that in your factoring of a LTC policy.  And most policies will limit the amount they will pay on a per day basis and for how long.  When LTC coverage started it was more common to have longer periods that benefits would be paid now it is mainly up to two years or so that an insurance company will pay the benefits.  Also many policies will pay $100, $200, or $300 a day in benefits.  Obviously the more per day that is paid in benefits and the longer the benefits will last and result in higher premiums as the chance is greater that the insurance company could be paying out more in total benefits.  It is wise to consider that a private nursing home room rate averages a little over $200 a day or about $73,000 a year and the average stay in an LTC facility is just over two years.  Of course depending on where you are living in the country could greatly affect the cost of a LTC facility as some parts of the country are considerably cheaper to live in and result in lower LTC costs as well.  An average LTC facility on the west coast could run well into six figures a year.  So if you lived in a high cost of living areas a LTC facility could run you $150,000 a year or if you were to be there for the average two years at least $300,000 that either you or the LTC insurance company would pay.

If someone were about 30 years old and invested $100 a month at an 8% return they would have about $230,000 at age 65.  If a person were 40 they would have to invest $250 a month to get the same $230,000.  As you can see it is possible to self-insure for LTC if you plan properly and get a return that is sufficient to grow your investment to a desired amount.  And again the best part of self-insuring is if you do not need to spend the money on LTC you can leave it to your loved ones.  Of course you would have to earn more than 8% on your investment as it will be taxed and must outpace inflation as well.  But there are strategies that can be used to minimize the taxes that have to be paid on the investment.  If you have concerns about a strategy seek the guidance of a financial planner.

No neither LTC or saving $100 a month for 35 years will be sufficient if you are diagnosed with a disease like Alzheimer’s which can lead to a LTC stay of well over the two year average.  In this case you will be forced to find an insurance company that offers a longer period of benefits.  In these instances it is best to consider savings, pensions, social security, and a LTC policy to cover the costs associated with a prolonged LTC stay.  Of course no one knows if they will develop an illness such as Alzheimer’s but such illnesses and things such as debilitating strokes do occur and will require possible extended stays in a LTC facility.  The best advice is to consider all of the assets that will be available to you for LTC and buy a policy that will cover the difference taking into account an extended stay in a LTC facility.

As women normally outlive men they now pay higher premiums.  But if a married couple buys a LTC policy together they may get a discount up to 30%.   Also it is a wise idea to check with your employer to see if they offer a LTC policy as many group policies will offer a unisex rate.  Also not all insurance companies offer the same products or the same benefits so regardless if you are a man or a woman make sure you shop around and get several quotes.

Contact Us

We're not around right now. But you can send us an email and we'll get back to you, asap.

Not readable? Change text. captcha txt
0