For many of my clients approaching their retirement years and beyond, this question is a common one: How will I pay for my long-term care if and when I need it? According to the Department of Health and Human Services, 70% of people turning 65 can expect to use some form of long-term care services during their lives. Women typically need care longer: 3.7 years versus 2.2 years for men. The issue of how to pay for this care is even more pressing for clients with a parent who has needed or currently needs care.
Even for clients with significant assets, the desire to “self-insure” is a scary proposition given the current environment of rising health care costs and longer life expectancies. While I am happy to help my clients with hypothetical cash flow scenarios to understand if self-insuring is a reasonable alternative, many don’t want to see their portfolios drained to cover their care. The question quickly turns to: Should I have long-term care insurance? While this is a personal decision that will be different for everyone based on family medical history, it should be thoughtfully considered. At Sand Hill, we work closely with long-term care insurance professionals to help clients determine if there is a policy that is appropriate for their situation.
If you are unfamiliar with the basics of long-term care insurance policies, below are some important points to know:
Most policies begin to pay benefits when you are unable to complete at least two of the six Activities of Daily Living (ADLs) without assistance: bathing, dressing, eating, transferring (as from the bed to a chair), and toileting, or when you begin to have cognitive impairment.
Benefits cannot be accessed until you have passed your policy “elimination period”. This is typically between 30 and 90 days—as determined by you when the policy is written—and when you must cover the cost of care out of your own pocket. As expected, the shorter the waiting period, the more expensive the policy.
It is important to know that not everyone will qualify for long-term care insurance and policies require medical underwriting. Insurance premiums are based on your age and health at the time the policy is written, so putting insurance in place when you are younger means lower premiums but paying them for longer before benefits may be needed. Insurance policies and their cost are also based on a daily or monthly maximum benefit amount, the maximum lifetime benefit period (often 3 to 5 years), and whether or not there is an inflation rider to increase benefits. Also worth consideration are hybrid plans that can provide both long-term care benefits if needed or a life insurance payment to heirs if not. As you can imagine, these flexible policies are more expensive.
Most long-term care policies written today allow for both in-home and/or facility care. If you are like many of my clients, you would like to stay in your home for as long as possible. But is your home well suited to the task? Modifications may be necessary to accommodate aging in place and to avoid falling, especially in the bathroom. Other home modifications may include entry way ramps and wider doorways to accommodate wheelchairs or walkers, handrails, and roll-in shower stalls. For multi-level homes, remodeling may be necessary so that there is a bedroom and a bathroom on the first floor. Another consideration is private space for a caregiver who may need to live with you.
While everyone hopes to live a long, healthy, independent life, the reality is that you may need to rely on others for care in your later years and for many years. How you pay for that care is worthy of careful consideration long before you need it.
Sources: AARP.com, Long-TermCare.gov
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