The Story of Mike and Mary
Mike worked really hard his whole working life and eventually amassed an enormous nest egg. He high-fived his financial advisor, went on a celebratory trip to Cancun with his beautiful and loving wife Mary, and retired to the “good life.” In fact, Mike’s next egg was so large that that he thought it would surely be plenty to tide him over for the rest of his life with plenty left over as a large inheritance for his kids and grandkids. Unfortunately, Mike didn’t count on getting Alzheimer’s.
With a semi-private room in a nursing home costing $86,815 per year in his home state of California, Mike’s wife saw the family fortune evaporate almost overnight. To make ends meet Mary had to liquidate retirement accounts, cash in Mike’s life insurance policy, and obtain a reverse mortgage to pay for his care. If only they had joined their friends Bob and Linda in gaining the security that comes with a Long Term Care Insurance policy before it was too late.
What is Long-Term Care Insurance?
In return for a premium of a few thousand dollars a year, Long Term Care Insurance provides policyholders with a backstop of protection in case they (1) develop a cognitive impairment such as Alzheimer’s or dementia or (2) lose the ability to perform at least two basic Activities of Daily Living (ADLs) including bathing, dressing, eating, moving around, going to the bathroom on your own, and walking. Long Term Care coverage can also provide support with respect to housework, money management, administering medication, preparation of meals, grocery shopping, taking care of your pets, and responding to emergencies (e.g., if you fall or if there is a fire).
Types of care provided include the following:
- Home Care – Assistance provided by a nurse, heath aide or therapist who comes to your home.
- Respite Care – Temporary care provided by a nurse or health aide to give the primary caretaker a break (e.g., a family member who normally cares for you in your home).
- Assisted Living – A community that provides basic support services to those who have lost the ability to perform certain Activities of Daily Living (ADLs).
- Nursing Home – Similar to assisted living but involves more intensive care (e.g., by nurses).
- Adult Day Care – Provides care and a sense of community for seniors who would benefit from basic support services, supervision, and socialization with other seniors during the day.
Do I need Long Term Care Insurance? Wouldn’t Medicare, Medicaid, and My Health Insurance Cover Me?
If you have very limited assets and meet the requirements for “poverty,” you can often obtain a limited amount of services through government programs. Therefore, Long Term Care insurance might not be ideal if you currently receive Medicaid benefits or have a low income. For example, according to the National Association of Insurance Commissioners, “a rule of thumb is that you may not be able to afford the policy if the premiums will be more than 7% of your income.”
However, coverage provided by government programs is often less than you may want. For example, Medicare only covers long-term care if you require “skilled” services such as those performed by nurses in long term care facilities such as nursing homes. Medicare will only pay for 100 days of care in a nursing home, which is far less than the 2+ year average nursing home stay. Also, Medicare does not provide assistance to help you complete basic Activities of Daily Living (ADLs), such as dressing, eating, or moving around.
Who is a Good Candidate for Long Term Care Insurance?
Long Term Care insurance could be an ideal solution if you:
- Have a long life expectancy – the longer you live the more likely you will need long term care (e.g., women and those with a family history of long life expectancies).
- Want to protect your assets against the (very) high costs associated with extended long term care.
- Have a family health history of chronic or debilitating conditions (e.g., Alzheimer’s, stroke, dementia, etc.).
- Want your family members to be free from the burden associated with providing long-term care, including lost wages and the incredible challenge presented by the responsibility of caring for both their children and their parents.
- Want the flexibility to choose the type of care you receive and where you receive it.
You probably don’t like to think about becoming dependent on others for your care, but whether we like it or not we are all getting older. Long Term Care insurance can be the difference between living out your life the way you want under the circumstances you choose or ending up older and alone with needs that are unmet by government programs.
What are your thoughts on long term care insurance? Share your comments below to continue the discussion.