The baby boomer generation is headed into choppy, uncharted waters when it comes to their long term care needs. By 2020, almost 55 million Americans will be age 65 or older, and life spans are continuing to grow longer. In past years, analysts noted the impact of senior care on the so-called “sandwich generation” – adults who were responsible for their aging parents as well as their own children. With lengthening life spans, the sandwich generation of the future may well refer to people in their 70s providing care to their parents in their 90s, or adults in their working years helping two generations above them. With the looming prospect of serious long term care needs, it is vital for individuals and families to get serious about their personal financial planning and have a plan in place to pay for a long term care event.
For many families, long term care insurance (LTCI) can make all the difference. LTCI coverage directly addresses the care expenses of aging or disabled individuals, in the environment that best suits their wishes and needs. Whether the setting is your home, an assisted living facility, or a nursing home, LTCI benefits supplement other income and assets to minimize the impact of those expenses.
Client Study: LTCI Protects Care for 97 Year Old Great Grandmother
Ruth is a 97 year old great-grandmother who purchased an LTCI policy 18 years ago at her son’s urging. Three years ago, still living independently, she recognized that she needed help with her activities of daily living and moved into an assisted living facility using her LTCI benefits.
Last year, she was diagnosed with dementia. She was moved into the facility’s dementia unit, where she receives round-the-clock care and continues to receive LTCI benefits. The current cost of her care is $6,900 per month. Her LTCI benefit pays $150 per day, or $4,500 per month, about 65% of her LTC costs. The remaining $2,400 is drawn monthly from her social security benefits and savings.
Assuming she continues to collect benefits, she will have collected $216,000 when she finishes her four-year benefit duration. Now on Waiver of Premium, Ruth has paid a total of $48,900 in premiums since the policy’s inception. Her LTCI policy has allowed her to pay for her care without exhausting her savings and going on Medicaid.
Is LTCI a good option for you or your family?
Here are a handful of considerations that should be part of your discussion:
Get educated about long term care realities. Ready for sticker shock? The average cost of a private room in a nursing home now tops $90,000 per year, and the average stay in a nursing home lasts nearly three years. Government insurance programs other than Medicaid do not address long term care issues.
Plan ahead – far ahead. LTCI premiums are most affordable when individuals sign up while still relatively young and healthy. Purchasers of LTCI in their 40s or 50s may pay thousands less per year than older buyers, and few companies will write policies for individuals over 75. Health and family history will also impact the cost of premiums and availability of coverage.
Take care of Mom. Most of us are familiar with the fact that women tend to live longer than men. Industry statistics show that 71% of new claims are from women. As a result, women’s premiums for LTCI are usually higher than men’s (a contrast to life insurance, where women usually pay lower premiums). However, the investment is worthwhile considering the larger potential expenses they face. As mentioned above, purchasing LTCI at a relatively young age can help lower premiums.
Customize a plan to fit your needs. LTCI products are available to fit very specific priorities. Choices abound in terms of amount of coverage, deductibles (commonly referred to as waiting periods for eligibility), benefit increase options that take inflation into account, and specialized shared plans for couples. Insurance advisors often craft combination plans with annuities or life insurance, taking advantage of tax laws for both traditional and asset-based plans. These tax advantages can include tax-free LTC benefits and/or 1035 tax-free exchange for asset-based life/annuity plans with an LTC rider.
Obviously, experienced guidance is a must in considering these factors. Buyers should seek out insurance professionals with a strong background in LTCI who can fully describe the advantages and limitations of a plan. It makes sense to consult experts in your community; costs can vary widely by geography and these experts will have the best access to accurate, relevant information.
We all need to face up to the real changes that occur as we age, and consider the best way to protect our assets and our families. For those with the foresight, ability, and commitment to establish that protection, LTCI is a proven strategy that works.
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