Wendy Insures Her Future Financial Security Wisely

Wendy is now age 50, a great time to shop and buy long term care insurance, LTCI. The reasons to buy on or before age 50 are twofold; premiums are low relative to waiting as most do into the next decade of their lives, and people are more likely to be healthy and insurable. “Age and health go a long way to keeping your premiums down”, I said. As an excerpt from Women, Wealth and Wisdom, Unleash the Fire Within to a Life of Purpose, here’s what I told her to look for in an LTCI policy.

Determine the financial hole that you will need to fill in and then decide how best to do just that. For example, if you project that long-term care expense will be $82,000 per year and you feel confident that you can fund $12,000, where will the other $70,000 come from?  This is a critical question because what you do here determines what happens to you and your assets down the road – which may be sooner than you think. Your options from best to worst are listed below.

1. Be wealthy enough to afford this cost. The risk here is that your financial standing could change and you could be facing a mountain of bills tomorrow you can’t afford to pay.
2. Do nothing and chance that you will be one of the financially lucky healthy people who die suddenly.
3. Purchase qualifying [1] long-term care insurance, LTCI to fill the gap.

Of these three options the smart choice is purchasing a LTCI. The purpose of LTCI like all insurance is to pool and spread your risk. In other words, instead of you alone assuming all the risk, a large pool of people will pay your costs (and you theirs) should you incur an insurable loss.  First consider how much, if any, LTCI you have with your group plan at work. Where are the gaps in coverage? Will it cover you if you leave work? Then think individual policies: What should you look for in a policy? Here are a few policy provisions that can save you money and increase your coverage.

Medicare coverage. Medicare can cover you during the elimination (waiting period) of your LTCI policy. If you have or will have Medicare, purchase an LTCI policy with at least a 60 day waiting period. As long as the insured is discharged to a skilled facility after 3 nights in a hospital, Medicare picks up 80% of the tab for up to 60 days in any given year. Assuming you have good Medigap insurance your cost should be covered.

• Age verses cost. The cost of long-term care varies significantly by state. In 2002, a policy offering a $150 per day long-term care benefit for four years, with a 90-day deductible, cost a 50-year-old a national average of $564 per year. For someone who was 65 years old, the national average cost was $1,337, and for a 79-year-old, the national average cost was $5,330. The same policy with an inflation protection feature cost, on average nationally, $1,134 at age 50, $2,346 at age 65 and $7,572 at age 79.[2] Today’s rates are much higher because insurance claims have risen substantially. Check rates and benefits with your financial planner.

• Pooled benefit policies. Some policies permit couples to pool their benefit. LTCI may pool years of insurance benefits of the couple to benefit one or both for the cumulative number of years both are insured. So if both purchase a 4-year policy any combination of one or both may use up to 8 years of benefits. This will stop when eight years of payments have been made whether one or both beneficiaries used it. Premiums are a little higher, but weighed against the potential longer term benefit, it can be a bargain.
•  Elimination period. Cover your elimination period with cash savings. Beyond 60 days determine how many days you can pay for out of pocket. For example if the cost is $300 per day and you can front the $9,000 from savings, you may elect a policy with a 90 day elimination period. The premium savings over a 30 day elimination projected over 10 years can be significant.

• Lifetime benefit means just that. The policy will pay for the lifetime of the insured. Because of the unlimited term and thus risk to the insurance company, these are expensive policies. They should be taken only if you have reason to believe the insured has such a risk or you do not wish to place your assets at risk for sale or liens.[3] Lifetime policies should be carefully weighed against the benefits and lower costs of shared and individual ones.

• Waiver of Premium: This provision allows you to stop paying premiums during the time you are receiving benefits. Read the policy carefully to see if there are any restrictions, such as a requirement to be in a long-term care facility for a certain length of time (90 days is a typical requirement) before premiums are waived.[4]

• Medicaid lien protection. Partnership plans are specific plans approved by most of the 50 United States that offer a degree of asset protection to policy holders. Some older plans have been grandfathered under these laws. Basically, these laws say that if you have a certain amount and term in years, of LTCI, certain assets like your home or bank and financial funds to a certain limit will be exempt from a Medicaid lien. Not all states have partnership plans, but most are developing them. The reason is to encourage people to purchase LTCI and shift more of the cost of LTC to insurance companies and less from increasingly over-burdened state budgets and the consequence of that; tax rates. Rules vary by state. Generally, to qualify, the policy must have upwards of 2 years of benefits. Contact your state to see if it has partnership status.[5]

• Reciprocity. Planning to move to a new state or country? Got an LTCI? At this point you may have a good marriage with your mate, but does your policy marry up with your new state’s partnership plan? Will your policy pay for care outside of theUSA? These are things you want to discuss with your financial planner and insurance agent. A wise adage is to plan liberally and live conservatively.

• What do you tell your insurance agent when you apply? What do you need to say? Fully disclose all medical history to him or her so he or she may obtain the best policy from the best company at the best price for you.

• When should you buy LTCI? Buy your coverage on your fiftieth birthday to save the most on premiums and to increase the likelihood that you will be insurable. The better your health and the younger you are, the lower your costs will be. Experience taught me that it is a lot easier to pay a small very affordable premium over a very long time than a large premium over a short time especially when I consider the weight of a large and increasing premium during fixed income years.

• Inflation protection. Inflation, of course, means that everything costs more tomorrow than it does today. LTCI is no exception. Plan on cost increases at a rate of at 2-4 times the annual inflation rate. This is another reason to insure early; a 6% increase of $100 is much more palatable than a 6% increase of $1,000 for those who wait into their sixties to insure.

Once she understood these options she better understood the enormous value of having this protection. Remember, Wendy as a single mom, has no one to fall back on. She absolutely doesn’t want to be a financial burden on her children. Long term care insurance will pay all her costs should she need assisted living anytime in her life. Women especially need this insurance because they remain in facilities or even in their homes receiving care far longer than men do. Who MOST needs LTCI?

According to insurance actuarial tables you are more at risk if you:

• are older
• are a woman
• are single
• have a poor diet
• don’t exercise regularly
• smoke
• have a family history of Alzheimer’s, stroke, arthritis, or any other degenerative diseases.

Conclusion: Wendy decided to face her future with the wisdom of knowing that she would be well cared for no matter what the future brings. She has prepared her financial ship to endure the greatest storms. She can expect the sun to rise as she cruises on waves of wisdom securely into the future.