By Bill Harris, RMA®
You do everything you can to prepare for life’s unexpected twists and turns. Unfortunately, it’s not possible to predict everything that could impact your health, wellness, and financial security.
A friend recently shared with me something that happened to him that illustrates this point in a frightening and poignant way.
In the middle of an otherwise ordinary day, my previously robust and healthy friend had a severe stroke. Worse, he was alone and rendered fully paralyzed along his entire left side. To get help, he had to claw his way to the end of his driveway.
He was med-evacuated to the hospital and had to undergo emergency brain surgery. Doctors warned him that he may never walk again, but thankfully he is doing well and amazing everyone with his progress.
Take a moment to imagine what this would be like. What would you do if you were suddenly debilitated and couldn’t work or support your family? As unpleasant as it is to think about, are you be prepared for something like this?
Long-term care (LTC) insurance deserves to be an important part of your financial planning. In the case of my friend, he had previously thought he would purchase LTC insurance at age 60. Now, he’ll never qualify for it.
When it comes to LTC insurance, a little foresight goes a long way.
What is Long-Term Care Insurance?
Long-term care insurance is a policy that helps individuals cover care expenses when they have a chronic medical condition, disability, or disorder. Long-term care assists with daily activities and can be used within an individual’s home, a nursing home, or an assisted living facility.
An LTC policy explicitly outlines events that trigger qualification for benefits. Examples include:
· The inability to perform any two of six basic self-care routines called Activities of Daily Living, or ADLs. These six routines are eating, bathing, dressing, toileting, continence and transferring from one surface to another. Needs of this nature are considered custodial care.
· A cognitive impairment to memory or reasoning that results in the inability to interact safely with your environment.
LTC is typically needed for approximately three years, but it can last far longer if it is needed for a more chronic condition such as dementia, a severe accident, or a stroke.
How is LTC Insurance Different than Disability?
LTC insurance differs from disability insurance based on how care is received. Disability insurance covers a portion of your income if you suddenly are unable to work due to illness or injury, such as getting in a car accident or having a heart attack. In cases like this, disability replaces some of the income you would have earned had you not been injured or sick.
LTC insurance, however, pays for some or all the cost of caregiving needed due to a physical or cognitive disability that affects your ability to care for your basic daily needs.
The Cost of Long-term Care
As the need for care increases, so does the cost of care. Genworth Financial has tracked care costs for 17 years, publishing a Cost of Care Survey each year. In 2020, it reports national monthly median costs as the following:
· In-home care: homemaker services ($4,481) and home health aide ($4,576).
· Community and assisted living: adult day health care ($1,603) and assisted living facility ($4,300).
· Nursing home facility: Semi-private room ($7,756) and private room ($8,821).
The cost of that care varies based on the care setting, geographic location, and level of care required, among other things.
At What Age Should You get LTC Insurance?
While it’s not possible for anyone to truly anticipate if or when they could need LTC insurance, it is typically recommended between ages 50 and 60.
Choosing when to get LTC insurance is a personal choice and varies from person-to-person. You want to try to secure LTC insurance before it is necessary, but not so early that you incur an unnecessary expense.
Benefits of LTC Insurance
You may be thinking of LTC insurance as yet another thing to pay for each month. Before jumping to conclusions, however, let’s examine more benefits other than the ability to access long-term care should you need it.
LTC protects your retirement savings
If you suddenly need long-term care and have no plan in place, it can eat up your savings quickly. LTC insurance helps protect your hard-earned retirement savings.
LTC gives you more options
If you don’t have LTC insurance, or enough private funding to afford long-term care, you will likely have to rely on government aid. This can limit the available options for long-term care locations, which may lead to being in a facility that isn’t your first choice. LTC insurance offers you more choices for where you want and how you receive care.
LTC insurance can count as a tax deduction under medical expenses. As of the end of 2020, the deduction rate rose again. Here is a table with the available deductions in 2021 by the American Association for Long-Term Care Insurance:
|Taxpayer's Age At End of Tax Year||Deductible Limit|
40 or less
More than 40 but not more than 50
More than 50 but not more than 60
More than 60 but not more than 70
More than 70
Things to Consider About LTC
70% of people over 65 will need some form of long-term care.
Medicare covers up to 100 days of nursing home care, as well as some skilled in-home services, but nothing else.
Medicaid pays the largest share of LTC services. To qualify for Medicaid, however, your income must be below a certain level (which is set quite low). You also need to meet minimum eligibility requirements in your state.
Making the decision to secure LTC insurance is personal and based on a lot of conjecture about things most of us would rather not think about. This decision affects more than just personal care, however. It also affects those you love financially, physically, and emotionally.
Long-term care should be part of your financial planning conversations. In order to have access to the most options, it’s best not to wait until you need it.
About the author: Bill Harris, RMA®
Bill Harris is a Retirement Management Advisor (RMA®), a CERTIFIED FINANCIAL PLANNER practitioner (CFP®), a Master Elite Ed Slott Advisor, and author of Inheriting Your Spouse’s IRA: The Widow's Guide to Keeping More of Her Assets. He is president of WH Cornerstone Investments, a financial advisory firm located in Massachusetts. Learn more at www.whcornerstone.com.
More from Retirement Daily
Ask the Hammer