By Dennis Kagel
Americans live longer, and more people will need long-term care coverage. Formerly called “Nursing Home Insurance,” today many people choose to stay at home and receive care, and there are many new options like Assisted Living and Adult Day Care, so today it’s referred to as LTC (Long-Term Care).
In spite of the fact the number of Americans who will need this coverage is increasing rapidly, the number of LTC sales has steadily declined since 2002. Companies who offered LTC in the past — Met Life, Prudential, Allianz, and Unum, just to name a few — have withdrawn their products recently. The logical conclusion is that insurance companies simply aren’t sure they can price the coverage sufficiently in order to make a fair profit. As our population grows older, and the cost of health care continues to rise, it’s fairly easy to see why companies have gotten out of the LTC business.
The Affordable Care Act tried to address some of the problems with our health care system, but completely ignored the growing long-term care crisis. The bottom-line is there are more people who need LTC, and their options are more limited than any time in the last decade.
Genworth pointed out in their LTC Survey: “Research shows that at least 70 percent of people over age 65 will need long-term care services at some point. Long-term care can impact people and families in many different ways, including finances, careers, lifestyles and state of mind.” Baby Boomers are turning retirement age at the rate of 10,000 a day, and many will face the high cost of care at some point. The average stay in a nursing home is around 3 years and the cost runs from $6,000 – $9,000 per month! In 2013 the average cost of a one-year stay in a private nursing home room topped $90,000. With 4 percent inflation, the cost of care would nearly double over 15 years. You can quickly “burn through” $250,000 $400,000 or more! We all know individuals who have lost their farm or businesses and all their financial assets because of the cost of long-term care.
What options exist today?
- Traditional LTC insurance. This is a “use it or lose it” proposition. Meaning that it’s possible you could pay premiums for several years, and never have a claim. And your premium could be raised.
- “Self-insure” means you are paying 100 percent of the LTC expenses out of your pocket. I’m amazed at the number of people who tell me they believe this is their best option. NOT!
- There are certain Trusts that can help. Catastrophic Illness Trusts, usually created by Elder Law Attorneys, can be used. The irrevocable nature of these trusts usually doesn’t appeal to most people.
- Asset-based LTC is a relatively new form of plan that offers an attractive alternative. Here’s an example of a case I recently presented:
A female, age 60, making a one-time deposit of $30,000 into the plan would basically create three buckets of money. The first bucket would contain over $160,000 in lifetime LTC benefits, to be paid out monthly. The second bucket would contain $67,000 initially (decreasing gradually), as a tax-free death benefit. The third bucket would be an interest-bearing account value. And any time after year three, the owner could receive back 100 percent of the amount deposited. Under current interest assumptions, this “cash value account” would even increase in future years.
The key advantage of Asset-based LTC is that one way or the other (for long-term care use OR in the event of death without needing LTC; OR if you withdraw the value in the future), you and your family will receive more than was deposited. And the premium is guaranteed never to increase.
I am not a believer in the idea that everyone needs to purchase LTC insurance…but I am a believer that everyone needs to consider how they would pay for LTC costs. Hopefully, this article will motivate you and your family to have “that talk.”
Dennis Kagel is the president of Dennis Kagel Financial Services, located at 321 Susan Drive, Suite A in Normal. You may call 309-454-9172 to schedule a no-cost and no-obligation visit to learn more about these new options.
Sources available upon request.
Photo credit: Susan Chiang/iStock