Protect your family, be prepared for anything.
As we age, we face more and more difficult financial decisions on how to take care of ourselves and our families. Likewise, as we age, we are more and more likely to need some sort of long term care, whether it is in-home or in an assisted living facility. While nobody likes to think of themselves or a loved one needing assistance with activities of daily living, the possibilities are real and it is good to be prepared for the unexpected.
By The Numbers
In 1994, 7.3 million Americans needed long term care (LTC) services at an average cost of nearly $43,800 per year. By 2000, this number rose to 9 million Americans at nearly $55,750 per year. It’s currently near $75,000 per year.
By 2030 those needing LTC will skyrocket to 23+ million Americans, with projected, individual long term care costs reaching $300,000 annually per individual!
Source: Long Term Care National Advisory Center
Long term care insurance (LTCI) is designed to cover people who do need extended care in their senior years. The costs associated with this type of care can be astronomical, and while LTCI is not right for everyone, it can deflect the devastating expenses a family might face when a loved one needs long term care.
Here, Spectrum’s Kathleen MacDonald sits down with Denver financial advisor John Downing, president of The Down Court Group, to help explain the myriad LTCI options available to you and your family.
KM: Can you describe just exactly what long term care insurance is?
JD: Sure, Kathleen. Long term care insurance was once looked upon as nursing home coverage, but modern policies go far beyond that. According to the American Association of Long Term Care insurance, roughly 24 percent of all new long term care claims are being paid for assisted living facilities.
KM: Who needs long term care coverage?
JD: We believe that almost everyone should consider long term care coverage. People are living longer than we ever expected so the chance of needing coverage is very high. The odds of needing long term care benefits are significantly higher than either homeowner or automobile coverage and we all carry those policies. Many people assume that long term care insurance is only for the elderly, but roughly one third of all policies issued last year were to people under age 65. It is important to purchase coverage while you are still healthy, and the younger the better.
KM: How does an individual qualify for benefits?
JD: With most policies the general requirement is being unable to perform any two of the six activities of daily living (ADLs), without assistance. Those activities include bathing, eating, dressing, toileting, continence, and transferring. If you cannot perform any two of those six ADLs without assistance you would be eligible for reimbursement.
KM: Are there different types of long term care policies?
JD: Yes, the range of coverage is truly amazing and is complex enough that you should work with a competent advisor to choose the right policy. As a general rule, long term care policies will cover both in-home and nursing home costs, adult day care, respite care, modification to your home such as wheelchair ramps or widening of doorways for wheelchairs, assisted living, and more. In addition, today’s policies provide an option to have a daily benefit or you can even acquire a pool of money that can be utilized as it is needed without the limitation of a daily cap on benefits.
As I mentioned earlier, assisted living is included with all modern long term care policies. When you are shopping for long term care coverage consider looking at lifetime benefits as it may be only marginally more expensive than a three- to five-year benefit period.
KM: How long do most claims last?
JD: It’s commonly reported that the typical claim is less than three years. However, those statistics were gleaned from looking at the length of time a person stayed in a nursing home. In reality, most people go to nursing homes in the final stages of life. Most people choose to receive care in their own residence or retirement community if that is possible. While the average stay in a nursing home is 2.3 years, you may need care for a longer period of time.
KM: How much is the average cost of care today?
JD: The latest statistics indicate that, over a three-year period, the cost of care is approximately $225,000 per person. In 20 years that figure will be over $400,000. You should assume approximately 3 percent inflation each year.
KM: Is there anything else you would like to tell our readers?
JD: Given the complexity of long term care coverage, they should shop around and find a competent advisor to assist them, someone they are comfortable with. Be sure to purchase a policy from a company that is strong financially. You want to be sure that the company is still there when you have a claim. Consider purchasing a compound inflation protection because the cost of care is expected to rise considerably. You should secure a lifetime benefit. If you can afford it, the lifetime benefit is certainly worth the extra cost. Finally, ask lots of questions so you understand what you are buying.
Long Term Care Insurance Can:
- Support independence by paying for Home Care and Assisted Living costs. It can give people choices in difficult circumstances.
- Protect loved ones from the burdens of caregiving.
- Be less expensive in the long run than paying for care costs out-of-pocket.
When Should I Buy Long Term Care Insurance?
LTCI premiums go up in price as you age, although once you buy a policy your premiums do not rise due to aging or health. If you can afford the premium for years to come, consider buying now to protect yourself and your family. Consult your family financial advisor or insurance professional to discuss whether LTCI is right for you.