Long-Term Care Planning: Myths vs. Realties
The following is a guest post by Robbi Weinman, CLTC:
Long-term care planning should play a key role in your overall financial, estate, and retirement planning strategy. Unfortunately, there are many myths associated with long-term care insurance. The goal of this article is to provide you with the facts you need to make an informed decision on the need for long-term care planning for yourself and your family.
Myth: It is difficult to qualify for benefits.
The reality is that it is relatively easy to qualify for benefits. The two benefit triggers are (1) you cannot perform two of the six activities of daily living (as a result of an accident or chronic disease) or (2) you have severe cognitive impairment. Approximately half of the long-term care claims are Alzheimer's, and Alzheimer's patients are being diagnosed much earlier (some in their fifties), as a result of more sophisticated diagnostic techniques. The other large claims are the result of cancer, cardiovascular disease, diabetes, osteoporosis, arthritis, Parkinson's, and similar chronic diseases. If you go on a disability claim and are using your disability policy, the chances are very good that you also qualify for long-term care services.
Myth: These are nursing home policies.
The reality is that most long-term care services are being given in the home. A long-term care policy covers home health care, assisted living facilities (which have medical floors and Alzheimer's units), nursing homes, and adult day care. A policy helps keep you out of a nursing home by providing options for you. You have control over where you will receive care and who will be providing the care for you. Most people want to receive care in the home. Home health care is an array of services that include licensed and certified home health aides, homemaker services, and skilled care (nurses, physical therapists, etc.).
Myth: My family will take care of me.
A person who gives care to someone who is chronically ill often becomes chronically ill themselves through the stress of caregiving. It is important to consider the impact of a long-term care event on your family, especially if you are relying on famly members who live far from you and who have families and jobs of their own. A policy does not prevent your family from taking care of you. Instead, it acts as an additional resource or support system, helping not only those who need care but also their caregivers. Long-term care insurance enables family and friends to take care of you without turning them into 24-hour caregivers. A long-term care policy protects the family and is similar to why people buy disability and life insurance.
Myth: The government will take care of me.
The reality is that there is no adequate government program to cover long-term care services. Medicaid requires you to liquidate the assets you have worked hard to accumulate. In addition, Medicaid only covers nursing homes. Medicare is health insurance for people aged 65 and older. Medicare provides extremely limited coverage for long-term care services (typically no more than 100 days) and is very restrictive in terms of qualifying (you need at least three days of hospitalization and then need to be improving to obtain benefits for a very limited period of time).
Myth: I will self-insure.
The reality is that long-term care is expensive and the costs of care continue to rise at about five percent a year. The average cost in the Triangle area is $160 a day (for home health care and assisted living facilities) or about $60,000 a year per person. If someone needed care for 10 years, the cost would be $600,000 at today's rates. The premium is not the problem, it is the cost of care that is the problem.
When you put your estate and retirement plan into place, were you thinking of using those funds to cover your long-term care needs? Failure to have long-term care insurance exposes all of the other planning you have done to risk. It makes sense to transfer the risk to the insurance company so that you can meet your other financial and family commitments. This is what you are doing when you purchase life, health, and disability insurance.
If you are very wealthy, you have may have accumulated substantial assets as a result of both hard work and savvy financial decisions. It makes financial sense to spend a small percent of your net worth to protect your entire net worth. This also enables you to fund legacies, whether they are for family or for charities.
Myth: I will never need care; I will take my chances.
The reality is that most of us will need care. According to the American Society of Actuaries, the need for long-term care has risen from 40 to 72 percent of people over the age of 65. According to the same organization, 40 percent of people under the age of 65 are at any point in time receiving care. Most chronic diseases are not based on age, gender, or socioeconomic status.
If you need care, the reality is that there will be huge consequences for your family and finances. Long-term care insurance takes away the risks, provides peace of mind, and helps you achieve a higher level of security.
Myth: I will be throwing money away on the premiums.
The likelihood of needing care is very high for most of us. If you have a policy and need care in 10 years, you will recoup all of the premiums paid into the policy in a number of months. The policy actually protects your money, since you need an income stream in retirement to cover your daily living expenses, to pay for medical costs not covered by Medicare, and to ensure your quality of life.
Myth: People do not need care for a long time.
The reality is that people are living longer as a result of medical advances and more sophisticated diagnostic techniques. According to the American Alzheimer's Association, people with Alzheimer's will live seven to 20 years. We are seeing a large increase in both long-term care costs and the claims associated with the need for services. The largest open claims for all types of care range from $640,000 to $1.4 million. According to the American Association for Long-Term Care Insurance, the 10 largest carriers of long-term care insurance paid out nearly $4 billion in claims in 2010. This represents about $11 million a day and is a 53 percent increase over 2007, only three years ago.
Myth: I can wait.
The reality is that the cost of waiting is not just an age change but a health change. The underwriting for long-term care policies with most companies is becoming much stricter. A change in underwriting classification means that you may be rated with a higher premium or that you may be declined. This is one decision that should not be placed on the proverbial back burner.
Myth: Long-term care policies are expensive.
Again, it is not the premium that is expensive, it is the actual cost of long-term care services. An individual long-term care policy is highly customizable and can be tailored to meet your specific needs and budget.
About the Author:
Robbi Weinman is an insurance specialist with MassMutual Financial Group, focusing on long-term care insurance. She represents other companies as well. She has the Certified in Long-Term Care (CLTC) and Chartered Retirement Planning Counselor (CRPC) professional designations. With nearly a decade of experience in long-term care planning, Robbi has given numerous presentations to different groups and organizations in the Triangle area.
A graduate of UC Berkeley, Robbi holds two master's degrees from Stanford University and an MBA from Pepperdine University.
She can be reached at 919-401-3601 or via email at rweinman@finsvcs.com
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