April 28, 2017
Long-term care insurance is worth it If you become ill — if you
don’t, it probably isn’t. But do you know what your future has in
store for you?
Some of us have health issues or family
members with a litany of health conditions that make it more likely
we will need long-term care (LTC). Those of us who are healthy or
had relatives who lived into their 90s never needing LTC may feel
less convinced that planning is necessary. The problem is that life
isn’t what we hope or expect it to be. It just is.
Individuals generally plan for LTC because they have experienced a
LTC situation with family or friends, want to preserve their assets
in order to leave a legacy, want to stay at home if they need care,
maintain the standard of living of a spouse/partner and, most
importantly, they do not want be a burden to their families.
Individuals who don’t plan, generally have never experienced a LTC
situation, feel their children don’t need an inheritance, and decide
to take their chances thinking they will never get ill.
I hear all the time is that the premiums are expensive. Are they too
expensive compared to the cost of home care, assisted living or
nursing home care? The answer is no!
Here is a scenario that
involved one of my clients. After reading their story, decide if LTC
planning would have been worth it.
Frank and Barbara were
happily married for 35 years when their financial planner brought up
the topic of LTC planning. They were both working at the time, owned
their house and a camp, traveled, and had a son who was engaged in a
successful career. Their retirement portfolio was performing nicely
and their financial planner felt they had enough discretionary
income to afford a LTC insurance premium. He referred them to me.
After several months of discussion, Frank and Barbara decided
not to purchase policies. The reasons they gave were — we can save
enough if something happens to us and our son does not need our
money. The cost of the annual premium for both of them would have
been a little over 1 percent of their entire estate.
year later, Frank’s health started to deteriorate. He developed
diabetes that eventually required an insulin pump which led to other
side effects of the disease. He was in and out of the hospital and
could no longer work. Barbara took more and more time off from work.
As if things could not get worse, Frank developed Alzheimer’s at age
63. His health insurance did not reimburse for his LTC expenses.
About a year later, Frank could no longer be left alone. Barbara had
to hire an aide to take care of him during the week so that she
could work. It cost her $25 an hour for eight hours, five days a
week for a total of $1,000 per week — or $4,000 per month. On the
weekends, she was his primary caregiver. This went on for about two
years with Frank eventually being placed in a nursing home that cost
$10,000 a month. He died almost two years later. Barbara had to cash
in some of their retirement savings, and eventually sold their camp
to raise funds for Frank’s care.
When Barbara and Frank
looked into purchasing LTC insurance they were both 58 years old.
The annual premium for both of them would have been $5,300.95 —
$3,275.71 for Barbara; $2,025.24 for Frank — which included spousal
discounts. Barbara’s premium was higher due to gender-based pricing.
Initially, the policy would have paid $250 per day for home
care, adult day care, assisted living and nursing home care with 3
percent compound inflation for three years of coverage. If Frank had
paid his premium for six years until he became ill, the total would
have been $12,151.44. His daily benefit over that six-year period
would have grown to $298.51 giving him a pool of money worth
Barbara paid approximately $336,000 out of pocket
over the four years for Franks’ care.
The policy pool of
money would have easily covered Frank’s care. Barbara would not have
needed to sell their camp or dip into their retirement savings. She
would have been able to maintain her lifestyle and standard of
Important to note is that once Frank went on claim, his
premium would have been waived.
Let’s say Barbara paid her
premium for 25 years. She would have spent $81,892.75. Add that to
Frank’s premium paid for six years and the total would have been
$94,044.19 — well below the $336,000 she spent out of pocket for
Frank’s care. Remember, the premium was less than 1 percent of their
Now answer the question. Would it have been worth
it for them to plan for LTC? Is it worth it for you to plan? The
answer is a resounding yes because we simply do not know what life
has waiting for us.