More than One Way to Skin the [Long Term Care] Cat (Part 1)

One of the biggest threats we have to our overall financial security and, in particular, our retirement nest egg, is the threat of an extended or chronic care (e.g. Long Term Care (LTC)) event.  Not everyone will need care as we age, but if we do, the costs can run into the hundreds of thousands of dollars for a significant event.

Consider these statistics from www.longtermcare.gov:

• About 70% of people can expect to need some form of LTC services after age 65
• On average, men who need LTC will need it for about 2.2 years, and women for about 3.7 years
• One third of today’s 65 year olds may never need LTC services, but 20% will need it for more than 5 years

When we combine that with the current average cost of care in the capital region (based on 2015 figures from the Genworth Cost of Care Survey), we can start to see why it is so important to plan in advance:

• $50-$53,000 for a Home Health Aide or Homemaker Services help
  • Based on 44 hours per week for 52 weeks
• $51,705 for a private room in an assisted living facility
• $132-$137,000 for a semi-private – private room in a nursing facility

And, contrary to popular belief, health insurance (including Medicare!) is NOT a significant payer of LTC costs.

However, there is some good news.  There are risk management (e.g. insurance) products we have available to help offset some, even most of the cost of a future care need, and to help protect the savings and investments you’ve worked so hard to build.

In this first article in a series on the options for paying for LTC, we will look briefly at traditional LTC Insurance.  As we do, keep in mind our staff are always available for a consultation to evaluate your specific situation and determine which of the several solutions available on the market today might be the best fit for you.

Traditional LTC Insurance, which has been around the longest in terms of available products, is fairly straightforward, though it can appear confusing at times.  While there are some additional benefits and riders that some carriers or products may offer, there are essentially 4 key decisions you need to make when designing one of these products:

• The daily (or, sometimes, monthly) benefit amount
  • g. how much you want the policy to pay for each day of service you require?
• The benefit period factor
  • How long do I want the policy to pay? For example, at $250 per day benefit, and a 3 year benefit factor, that would give me a benefit “pool” of $273,750 from the policy’s inception.  If I only need $160 per day from the policy (say, for 8 hours of home care per day at $20 per hour), I would still have money left in my pool at the end of 3 years, so the policy would not end, it would keep paying the $150 per day until it was used up
• The deductible – technically referred to as the “elimination period”
  • How many days am I willing to pay out of pocket when I need care before the policy starts paying? The longer the deductible, the less expensive the overall premium.
• An Inflation option
  • Do I want my policy to increase automatically each year and, if so, at what percentage? Would I prefer to pay for a base policy and have the option to buy additional coverage later?

It’s important to note that there are no “right” or “wrong” answers to those questions, as each person’s situation is different.  Our role is to help guide you through the process, and help you decide which is best for you.

Source: Bob Vandy, NYLTCB

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