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The Long-Term Care Conundrum
HOW TO PROTECT YOURSELF WITHOUT BREAKING THE BANK
Long-term care is not something we’re often comfortable discussing, even with our family members, so it’s no surprise we’re not eager to talk about it with a financial advisor. Some adopt an attitude of, “I’ll take my chances because I’ll never need it,”while others worry about the high cost of care. And look, I get it. Premiums increase constantly, and long-term care coverage can be expensive, but, if you do need care and you’ve decided to forego insurance, you’re going to be in a tough spot. First, let’s address the “it won’t happen to me” point. If I go back and look at my own family tree, my maternal grandfather was a long-term care recipient for 10 years, my paternal grandmother for two years, and my father for seven. Over those two generations, 50% of my family needed care. Nationwide, the odds are even greater. According to the U.S. Department of Health and Human Services, 70% of people age 65 and over will end up needing some form of long-term care. Nearly as many people will need care for five or more years (20%) as will need no care at all (30%). The numbers don’t lie, and betting you won’t need long-term care coverage is a very risky gamble. When designing a complete retirement plan, you must include health care considerations. When it comes to long-term care planning, our focus needs to be on achieving two strategic goals. First, we want our premiums to remain the same throughout our lives. In other words, what we pay when we’re 65 is what we’ll pay when we’re 85 for monthly premiums. Second, we want our benefits to be transferable to our spouse or possibly other
loved ones in the event we don’t end up using them for long term care. Meeting these two criteria accomplishes a bigger goal: preserving our quality of life. Isn’t it nice to know if you get sick, you have the option to stay at home and get the care you deserve? Unfortunately, traditional long-term care insurance is wanting in both areas. Premiums most certainly go up, and benefits are rarely transferable. In the case of Federal Long-Term Care Insurance program FLTCIP, the insurer John Hancock is allowed to raise the rates as much as 100% every seven years. That adds up in a hurry. Let’s say, for example, they only raise the rates by 65% every seven-year cycle. If you were paying $135 at age 57, here’s how it would escalate:
There are better ways to provide for your long- term care. One is through life insurance with a long-term care provision. Under this arrangement, your death benefit represents the total amount of LTC coverage, too, and can be accelerated for a percentage per month to cover these costs of LTC. Monthly death benefits are usually between 2–4% monthly. When determining how much of a daily benefit you want to insure yourself for, be sure to account for inflation. Two decades from now, $175 per day will have a lot less buying power. You’d likely need twice the amount for a daily benefit in 20 years. You also want to make sure you preserve the option of in-home care and allow unused care coverage to be transferred upon death in the form of tax-free life insurance. Another route is to opt for asset-based long-term care. Under this plan, you put aside money, which will then be multiplied, and subsequently used, if needed, for long-term care. If the money is not used for long-term care, it can be taken back, often even with interest added. Again, if no one uses it, it will transfer upon death to the beneficiaries you have designated. Okay, so we can guarantee stable premiums and transferable benefits. More importantly, we can preserve your right to have an active say in your care and quality of life. Isn’t that what it’s all about? We’re not just talking about your lifestyle; we’re talking about your life. Now let’s get talking. -Charles Dzama
57–63 64–70 71–77 78–84 85–91
$222.75 $367.53 $606.44 $1000.62
Note that the average age someone starts needing care is 84. At that age, it may become an excessive strain on your monthly expenses. It’s noteworthy to mention these rates can be more favorable than in the private sector, where rates can double in as short as 4–5 year increments.
We need to get off that train.
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