Stephen Kyne, partner, Sterling Manor Financial in Saratoga Springs.
By Stephen Kyne
Long-term care planning is an important component of any retiree’s life. Volumes can, and have been written on the subject, but I will try to be brief.
Insurance, regardless of the type, is a way to transfer the financial risks associated with some event to a third-party. The event could be death (as in life insurance), fire (as in home owner’s insurance), or a change in your health that requires care over a long period of time — Long-term care insurance (LTCi). Insurance companies will charge you a premium which is directly related to the likelihood of the event transpiring.
LTCi is an incredibly versatile and customizable planning tool but, generally speaking, there are two reasons people purchase it.
The first reason is economic. The current, average cost of care in this part of the country is around $9,000 per month. The average duration of care is about three years. That means the cost for care averages about $325,000 per person. In the event of a cognitive impairment (dementia or Alzheimer’s), the length of care can be upwards of 10 years. On a personal note, I recently helped move a close family friend from a $9,000/month facility to a $15,000/month facility for a multitude of reasons, but suffice it to say that when I say the “average” facility costs $9,000/month, I mean just that – a bed in a shared room with no frills.
The sad truth is that many people are not poor when they enter nursing homes; they are poor when they leave them. By the time they have spent down their nest eggs to a level where they qualify for Medicaid, there may be very little left to provide for the remainder of their spouse’s retirement. The economic need is evident.
The other reason people consider LTCi is to provide for a specific mode of care. Most people would rather receive care in their home for as long as possible, then transition to an assisted living facility and finally a nursing home as their condition warrants. LTCi can pay for in-home care – even home modifications – to allow you to receive care where and how you like.
Who should have it? Everyone. Having a plan for meeting long-term care expenses can be a crucial part of your comprehensive retirement plan. If you or your spouse require care, the financial effects for the healthy spouse can be devastating.
Why doesn’t everyone get it? Oddly, some people view the premium as “wasted” if they never need care. Think about it: Would you complain if your house never burned down and you never collected on your home owner’s insurance? Would you complain if you never had a total claim on your car insurance?
Of course not. And if you paid for LTCi and never had to spend ten years in a nursing home, unable to recognize your own children because your mind had been ravaged by Alzheimer’s, I’m sure you could think of worse problems to have! Incidentally, as life expectancies increase, cognitive diseases, such as Alzheimer’s, become more prevalent. The Alzheimer’s Association predicts that 1 in 8 Baby Boomers will develop the disease. That means roughly 1 in 4 couples will be directly affected. Compare that to the 1 in 16,000 chance of your house burning down.
Another reason people don’t get it is that they think Medicare will cover their LTC expenses. According to a recent AARP survey, more than half of the people polled wrongly believed that Medicare would pay for LTC. In actuality, Medicare pays for less than 2 percent of LTC costs. This is partially because you will have paid out-of-pocket until you are poor enough to qualify for Medicaid. If you’re not insuring, you’re self-insuring.
Tips for shopping for LTCi:
1. Work with an independent agent. If an agent can only represent one company, how do you know that company is best for you? Insurance companies price their products to be competitive in different arenas. Some companies are quite strict in their underwriting, and others are willing to write policies for people with health issues. A company may have a phenomenal product in its niche, but if that niche doesn’t include you, then it doesn’t do you much good. Your independent agent will be able to find you a proper fit.
2. Don’t be discouraged by your health. Consider the risk you pose from the insurance company’s point of view. For life insurance companies, the risk is that you’ll die tomorrow. For LTCi companies, the risk is that you’ll live too long. So, things that would disqualify you from getting life insurance may not work against you for LTCi. We recommend testing your insurability by submitting an application. It shouldn’t cost you anything to try, since most premium deposits are fully refundable.
3. Research the Partnership for Long-Term Care (nyspltc.org). The state is trying to incentivize people to purchase LTCi. If you purchase a participating policy, when the policy is exhausted, the state will allow you qualify for Medicaid without having to spend down your assets to the normal qualifying level. There are restrictions, so educate yourself, and be sure your agent is approved to sell and service Partnership policies. Recent changes in reciprocity mean that you may still receive Partnership protection, even if you retire out-of-state.
LTCi can be a crucial planning tool for any (pre)retiree. Be sure to get all the facts before deciding whether or not it is right for you!