By Larry Thaul, CLU, ChFC, CLTC
Looking into the future isn�t always easy as we age.
Along with facing personal losses, we also need to face the fact that at some
time we may be in need of personal everyday assistance due to an injury, disability,
or impairment of some kind. This is especially true in light of the strong trend
toward increased longevity. Many of us can expect to live into our 80�s
when a majority of this care is needed. In order to maintain our independence
and dignity at its highest level, we may need assistance with activities of
daily living like eating, dressing, or bathing. Assistance of this kind can
be provided by either an informal caregiver (like a spouse or adult child),
or a formal caregiver.
Informal care is not always feasible due to the fact that most adult children are employed, may not live nearby, or a spouse is not capable of meeting the demands of the person in need. Formal care, or assistance you pay for, can be provided in a person�s home, community or facility. Formal care, including caregivers, housing and services provided over the course of many months or years, is called Long Term Care (LTC). Receiving this level of care over an extended period of time can exhaust a family�s life savings. One way to pay for Long Term Care is to purchase a Long Term Care Insurance policy (LTCI).
How does a Long Term Care Insurance policy work?
LTCI policies pay you a benefit to cover the expenses of formal care either at home or in a facility. Generally, they can reimburse you for daily covered expenses from $60,000 to over $125,000 per year (the range of LTC costs in the NY-Metropolitan area). An LTCI policy can be beneficial to you and your spouse by preserving your hard-earned life savings from the financial ravages of an extended impairment. Further, a policy of this kind will help you maximize what you pass on to your heirs.
Why should I own an LTCI policy when the federal government will pay for my care?
Medicare, the government healthcare program for seniors, covers in part only certain kinds of care for a maximum of 100 days. This, along with any medicare supplement insurance, covers approximately 10% of total care costs. Therefore, you are personally responsible for the remaining 90 percent!
Medicaid, a state and federal healthcare program for the impoverished, requires beneficiaries to possess assets and income beneath a low threshold level to obtain limited, restricted benefits.
Now that you realize that the government is most likely not going to fund your potential LTC costs, how are you going to avoid these potentially crippling care costs?
Besides paying for it yourself, a Long Term Care insurance policy is the only efficient way to ensure that the funding is available to cover your care at the moment it is needed. Let�s examine the basics of how to formulate the best policy for your needs.
Choose a daily benefit amount dependent upon where you want to live. Because fully 80% of care is administered in the home*, make sure that the policies you review cover the cost of home health care as completely as facility-based care. Facilities could mean nursing homes or assisted living communities. For example, care in Florida might cost half what it costs in Westchester County. Your policy now needs an elimination period, the number of days one must wait until you become eligible to receive benefits because of your inability to perform activities of daily living. Finally, select a benefit period, the length of time your coverage extends. On the average, policies offer 2 through 6 years or unlimited benefit periods.** These several criteria will determine the cost of your policy.
A good LTCI policy is designed to travel with you anywhere in the country for life and is noncancellable by the carrier. Make sure to choose a carrier with a commitment to this line of coverage, high ratings and long term stability.
When does it make sense to explore LTCI?
Purchasing in your 60�s is wise from a long term cost approach when the average premium can be one-third the premium in your late 70�s or 80�s. This results in significantly lower premium outlays over time. Buying late in life can prove prohibitively expensive.
*Source: U.S. General Accounting Office, Long-Term Care: Diverse, Growing Population Includes Millions of Americans of all Ages, (GAO/HEHS-95-26, November 7, 1994).
**Even actuaries are not certain of the durartion of an �average� home jhealth care claim. They can, however, predict with relative certainty the length of stay in a nursing facility for males and females by age and other characteristics.
It makes sense to explore LTCI when you are fairly certain of what your future income will be and can afford an unbroken stream of premium payments over the course of your life. It can be purchased as a hedge to the likelihood of major LTC outlays and should not significantly alter your general spending and lifestyle habits.
Some final words of advice
As you can see, owning a Long Term Care Insurance policy is not a simple process. It takes personal reflection, knowledge and the initiation of a candid dialogue with those individuals who are involved in helping you plan for your future. Thinking about how you would like to age and where and who would provide LTC services is an important step in securing your independent lifestyle and quality of life.
Lawrence J. Thaul, CLU, Chartered Financial Consultant, specializing in Long Term Care, is founding co-principal of Millenium Financial, Inc., Rye Brook. He resides in Larchmont with his wife and two sons.