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Good to Know: Who Needs Long-Term Care Insurance?

What are the odds you’ll need long-term care?

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Long-term care is a distinct possibility for millions of Americans. Today’s baby-boomers and their parents are living longer, but longer life expectancies are often accompanied by a need for extended long-term care.  According to the American Society on Aging, 70% of Americans 65 and older will need some form of long-term care.

How much will it cost?

Long-term care costs vary greatly, depending upon the nature of service provided and geographic location. Skilled care (the highest level of care within a long-term nursing facility) averages over $100,000 per year nationally. Assisted living facilities do not require skilled care and provide purely custodial services such as feeding, bathing, medication management, and dressing; these facilities range in annual cost from about $40,000 to twice that amount or more in some states. The average time required for long-term care services is 2½ years but can vary from under one year to ten years.
Clearly, an extended need for long-term care can be devastating to the average American’s retirement income portfolio.

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What choices does a client have to plan for long-term care costs?

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This is as straightforward as 1-2-3.

  1. Self-Insure– This is an option only for clients that can and are willing to absorb costs of $300,000 or more out of their net worth. If most of your clients fit into this category, congratulations on having a successful practice!
  2. Buy Long-Term Care Insurance– This is the preferred choice for clients with too little money to self-insure but too much money to qualify for Medicaid. Wealthy clients may also choose to insure long-term care cost risk rather than risk eroding their wealth.
  3. Count on Medicaid – Medicaid is for the very poorest of the poor. Generally, a patient only qualifies if he or she has a liquid net worth of $2,000 or less.

What factors should a client consider when considering long-term care insurance?

AGE

  • The individual's or couple's age may influence their eligibility for coverage and will certainly affect the amount of premium necessary to maintain coverage. Not everybody is insurable. According to Genworth Financial, 57% of those who apply for long-term care insurance at age 80 or older are declined by insurers, while only 11% of those who apply between the ages of 50 and 59 are turned down.
  • There is a tension between accumulating adequate funds to provide sufficient retirement income and managing financial risks in retirement. If your client is in the accumulation phase of retirement, they will find it more difficult to make a decision about resolving a risk that they perceive as most likely one of old age and can thus be deferred. They will be more decisive when they are comfortable that their retirement income will be adequate to pay the premiums or that their income or capital base is possibly high enough to handle the risk.
  • We need to remind clients that the risk of needing long-term care is a possibility regardless of age; it just increases with age. About 47% of the long-term care population is under age 65.

FAMILY HEALTH HISTORY

  • The family health history will influence the client's attitude toward the risk of long-term care.
  • A person whose older family members had illnesses that required lengthy custodial services in old age will probably be much more sensitive to the risk than a person who is not aware of significant long-term care needs of older family members.

FAMILY DEMOGRAPHICS

  • Are the parents of your client still living? Is it possible your client will bear some burden of their LTC costs? LTC insurance premiums paid for by children is a common resolution of LTC risk for children of parents who cannot afford the premium.
  • If your client has children, is your client concerned about being a burden to the children in the event of LTC needs and expenses?
  • What family members could be involved in your client's LTC decisions? Where are they located? What role would your client want them to play if the client has LTC needs?

The risk of long-term care cost is like any other risk – a client can ignore the risk and hope for the best. A savvy client will confront the risk and manage it just as they manage other risks such as premature death, disability, or property damage to homes and cars.

In our next blog, we’ll continue the Long-Term Care insurance discussion with key policy provisions and other vital information.