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An Introduction to Long-Term Care

We spend our entire adult lives planning for our future. But no matter how well prepared we are, there are often details left unattended. While some details can be missed without causing a financial crisis for our heirs or us, others create a cascade of debt and depletion of assets that one might consider unforgivable, especially when just a small amount of affordable insurance planning could have prevented the disaster. This is the case when long-term care planning is neglected.

What Is Long-Term Care?

When people think of long-term care, they often assume that it means any nursing home care that the elderly need for medical reasons. Since Medicare pays for elderly healthcare needs, many people go on to assume that long-term care is taken care of.

Sadly, this is not the case. Long-term care is a type of nonmedical care that is necessary in order to ensure the well-being and quality of life of individuals of all ages. It includes assistance for activities such as dressing, bathing and feeding oneself. Because this care, while necessary, is nonmedical in nature, Medicare doesn’t provide payment for it. Medicaid may pay the costs, but only after your assets have been wiped out.

Why You Should Be Concerned about Long-Term Care

In 2011 Forbes reported that the average cost of a private nursing home room in 2010 had risen to $87,000. Assisted living facilities rose to $42,000 per year and adult day-care programs, which are extremely helpful to those suffering from dementia or other illnesses that make alone time dangerous, had risen to $70 per day.

Imagine how quickly your savings would be depleted if you had to pay out of pocket for these costs. And since these are 2010 prices, the costs are only going to have increased by the time you need them.

Long-Term Care Insurance

A long-term care insurance policy offers you a seamless, affordable way to design the perfect long-term care planning strategy for you, your spouse, your heirs and your savings. This customizable policy offers you many ways to control costs and risks. Some of the options you can choose from include:

  • An elimination period. This is the time between the start of your long-term care and when the policy begins to pay out benefits. During the elimination period, you will rely on your savings to pay for your expenses, which is why it’s important to be careful about how long an elimination period you choose. If you compare the premium costs between a short period and a long period, you will see the financial benefit of going long, especially when you consider what you could earn by investing the premium difference. With that said, it could be a good idea to set those premium savings aside in a special account that is designated to pay for your costs should the elimination period be exercised.
  • A maximum daily benefit. This limits the daily costs that your policy will cover. Any additional costs will fall on your shoulders.
  • Lifetime maximum benefit. This dictates the total amount the policy will spend on your long-term care. While a low maximum will result in lower premiums, it’s a pretty big risk to take considering you will be solely responsible for any excess.
  • Spousal benefit rider. This makes it convenient and affordable to get long-term care protection for two people.
  • Inflation rider. It’s totally understandable to be frustrated when trying to choose limits for your policy. After all, you have no idea what long-term care will cost in 10 or 20 years when you actually need to use the coverage. An inflation rider raises the benefits proportionately to the increase in average costs.
  • Return of premium rider. While most individuals would be grateful to pass away without ever having need of long-term care, it can feel like a pretty big layout of premiums for a benefit that may never be used. A return of premium rider allows for the refund of premiums after your death if the benefits are never tapped into.

LTC Insurance Alternatives

There is one alternative to long-term care insurance that offers some flexibility in that if you don’t need to use the resources to pay for long-term care, you can use them for something else. This alternative choice is a cash value life insurance policy, such as universal life.

With a permanent life insurance policy, your premiums go toward accumulating a cash value balance that you can access for tax-free loans for anything you want. This can be very useful when looking for an alternative way to generate funds available for long-term care. Because it is a life insurance policy, your beneficiaries will still get a death benefit when you pass away, although it may be reduced by the amount of any unpaid loans. You can even add an accelerated death benefit rider that will give you access to a percentage of your death benefit if you are diagnosed with a terminal illness.

Policies such as this can give you fixed growth in the cash value accumulation or may rely on subaccount selection to determine the gains made. During years when you can’t afford to fund the cash value, a universal life insurance policy will allow you to pay the cost of insurance only.

A long-term care policy is an easy, affordable way to protect your assets throughout your retirement. If you aren’t convinced that you’ll need long-term care, a permanent life insurance policy offers you cash values that you can instead access for other needs, including as a source of tax-free income. After all the sacrifices you’ve made over your adult life to secure those assets, it certainly makes sense to provide this added layer of protection for yourself, your spouse and your heirs.



About Dennis M. Postema

Dennis M. Postema, RFC, is a successful entrepreneur, best-selling author, coach, speaker and registered financial consultant. He is the founder of MotivationandSuccess.com, StoriesofPerseverance.org, FinancingYourLife.com and TheRetirementInstitute.org.


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