Understanding Individual Long Term Care Insurance

Author: Rick Lavis, CLTC, LTCP

The cost of long-term care is staggering. For example, a year in a nursing
home now averages $76,000 nationally and can exceed $110,000 in some areas.

Home health care can cost as much or more than the cost of a nursing home. In fact home health care expenses can run $170-200 per day or more for a single shift.

What is Long-Term Care?
Long-term care is the kind of care needed by persons requiring assistance or supervision with the everyday activities of daily living due to physical or
cognitive impairments or for persons needing medically necessary care for
an acute or chronic condition. Care can be provided at home, an adult day
care center, an assisted living facility or nursing home. More than 85% of
care today is received outside of a nursing home setting.

For more information:

http://www.selectquote.com/images/Long_Term_Care.pdf

CHALLENGES AT RETIREMENT

One Man’s Plan

Life consists of two major events with a lot of stuff in between. You’re born. Stuff happens. You die.

Stuff that happens in the early years seems pretty important at the time. But, at the other end of the journey it’s amazing how few specifics you remember. It’s also absolutely mind boggling how fast you get there. Here I am at age 73, much closer to the second major event than the first and wondering how it could have zipped by like it did. When I was a youngster, 73 was ancient! I didn’t know many people who were that old. But then I saw my mother live to age 91 and her mother was almost 100 when she finally faded away.

My mother’s death brought a sense of reality to me as I became the oldest member of my family and realized that the second main event of life comes to all of us at some time. We just don’t know when. And that’s what makes planning for these years such a challenge. How long will it be and what extraordinary expenses might befall us during this time?

I have been very lucky, blessed with good health, a reasonably agile mind, the ability to see the big picture and a solid work ethic. But good luck doesn’t always pan out and is no replacement for planning. It is never too soon to establish a plan for your later years. Trust me; they’ll be here before you know it.

So, what are the most important elements to a plan? What do I think about during my eighth decade on this journey? I think about the importance of my wife and I keeping our good health. I think about trying to spend every day I have doing things that make me and my family happy. I also think about money. Will I have enough to keep doing all the fun things we want to do for as long as we are able to do them? What effect will a major economic shake up—as we are now experiencing—have upon our cash flow? I think about never wanting to be a burden to my wife or kids and how I want to have something left over for my family and loved ones after my wife and I are both gone. I wonder what resources I will have—health, financial and mental—with which to cope.

The health issue is most important. There are no assurances, but being able to afford the best in medical care is essential. So, my wife and I both have Medicare, parts A and B and a Medicare supplement (plan F) that covers all deductibles and copayments as well as a prescription plan. I see my doctor more now than I ever did when I was working full time and my coverage is all inclusive. At this age, preventative care becomes all important. It’s no wonder Medicare funding is in such big trouble. We also maintain a travel accident and health policy since we do travel a great deal to other countries.

When I retired from my 45 years in the insurance business in 2004 I also decided to give myself a leg up by adding a personal trainer to my agenda. I never seemed to find the time when I was consumed by the office five plus days per week, but now my cardiovascular and muscle toning sessions twice weekly are just enough to keep me feeling good and good about myself. In fact, I felt so good about myself that I came out of retirement in 2008 to join my good friend Charan Singh at SelectQuote.

Still, there is nothing to assure that my wife or I will not suffer a debilitating illness requiring extended care that is not covered by these health policies. Dementia and Alzheimer’s come to mind as the greatest demons we may have to face. Medicare doesn’t touch the expenses associated with home care or nursing homes and qualifying for Medicaid is something I would never want to face.

The thing is, the person with the affliction does not suffer nearly as much as the spouse and other family members. It is not unusual for expenses to run into the hundreds of thousands of dollars. And this is where the health and financial factors cross paths. That’s why, when I was age 62, I purchased a Long Term Care Insurance Policy that became fully paid-up in 10 years. I paid for it during my prime working years and now I never need to be concerned about personal financial devastation or family chaos that accompany these inflictions. I can’t tell you what peace of mind I have knowing that I have a policy whose benefits compound annually by 5% and that I will never have to pay another dime of premium.

My financial plan will not be derailed by the expenses of long term care. I saw my father-in-law end up having to spend everything he had worked for, first for home care and finally in a nursing home. Toward the end he seemed oblivious to his plight, but his wife’s death a year before was preceded by a tormented time worrying about how to get her husband the best care and where the money would come from to pay for it. He had been a great provider during his working years, but he just failed to plan. That will not be my legacy.

At my age, income becomes much more important than net worth when measuring financial resources. For this reason, my stock portfolio is diversified and seeks dividend yield as opposed to growth and an immediate annuity is something that I will be adding within the next year. At my age 74 and my wife’s age 70 an immediate annuity can guarantee us an income equal to approximately 8% of the premium until the second of us dies. Approximately 65% of each payment we receive will be tax free until we recover our cost basis. We will only use a portion of our assets to purchase this annuity since we cannot access the principle once the income stream starts. And, if we die in the early years our heirs might have done better if we had gone into a more traditional investment. But it is a great element for our total portfolio, adding a base guaranteed income that we cannot outlive

Finally, to satisfy my desire to leave something for our kids and loved ones when the second of us dies, my wife and I purchased a Second-to-die Life insurance policy eleven years ago. This type of policy is traditionally used to provide for estate liquidity to pay for taxes imposed at the death of the second spouse. Will it be needed for that purpose? Who knows? The federal estate tax has been reducing annually and is scheduled to be non-existent in the year 2010, but then return to its previous 55% schedule in the year 2011. It is likely that congress will make some adjustments to this approach before the end of 2010. The exclusion amount will probably be increased and the percent taxed decreased.

But, whatever happens will not change our commitment to maintain this policy in force. The Internal Rate of Return on the death benefit is excellent, regardless of when the second death occurs and it fits in with our tongue-in-cheek “Estate Plan” to spend the very last dime of every liquid asset we have on the exact date of the second of us to die. We will have lived to the fullest and still have left a legacy of parents who loved their kids and cared for those left behind.

With health insurance to cover all possible long term care needs; an immediate annuity and conservative, income producing investments and a Second-to-die life insurance policy, I feel great about my years ahead and how I will be remembered when the last major event takes place.

Michael M. Flynn
Director of Special Markets
SelectQuote

If you would like to discuss your plans for retirement with the author, he may be contacted at: Mflynn@selectquote.com, or by calling him at 1-888-244-2173.