Today’s reality is not whether you will need Long Term Care (LTC), but rather when it will be needed.
The unknown cost of health care is among the most significant risks to any well-funded retirement plan. Future retirees face the possibility of an extended health event that will require costly care over a long period of time. This risk is a source of anxiety for many, yet few have taken the appropriate steps to understand the potential ways to fund this sizable future liability.
In order to determine the appropriate method for funding an LTC plan, it’s necessary to know some of the basic facts. To assist you, we’ve prepared this informational piece that outlines facts and figures about LTC, as well as various approaches to paying for the expense. Although LTC is a challenging subject, having a road map before the need arises can be extremely helpful and potentially lower the financial and emotional burden on family and friends later on.
What is Long Term Care?
As the population ages and more people live longer with chronic conditions such as Alzheimer’s disease, the demand for LTC services will continue to rise dramatically. LTC is the help people need when disabilities or illnesses restrict or prevent them from performing life’s basic tasks such as bathing or cooking. Depending upon the individual’s condition, LTC may be provided in the home by family or paid caregivers, in adult day care programs, or in residential settings such as assisted living facilities or nursing homes.
Regardless of where an individual receives care, all LTC events are triggered when an individual’s Primary Care Physician certifies the individual has a cognitive impairment or needs assistance with two of the six
activities of daily living.
Control Risk – Don’t Let Risk Control You
70% of people over the age of 65 will need some form of long term care. 22% of people under 65 experience an LTC event primarily due to accidents. The statistics speak for themselves. An extended health event is far more probable than losing a home to fire, totaling your car in an auto accident, or even spending the night in the hospital.
How Much Could Long Term Care Cost?
In the US today LTC costs average approximately $200,000 with significant events easily exceeding $500,000. It’s not uncommon for families to spend over $1,000,000 caring for a family member who needs LTC. The emotional drain on spouses and children who will suddenly face caring for a loved one or parent for several years is not calculable in terms of dollars.
While the cost of care today can easily be $200,000, it’s likely that the future need for care will happen 10, 20, 30 years from now. On average LTC costs have typically increased an average of 3-5% on an annual basis. Using a conservative 3% inflation factor, the cost of care tomorrow will be significantly higher.
Options for Paying For Care
When it comes to paying for the cost of an extended health care event, there are options:
The majority of people who self-insure do so because they will fail to plan for this event or wait too long and their health conditions preclude more efficient solutions. Self-Insuring will erode the estate of retirement funds designed to pay for income, lifestyle or legacy needs. Significantly, you will be using taxable dollars to pay for care.
2. Medical and Disability Income Insurance will not pay for the costs associated with an LTC event.
3. Government Programs
Medicaid – Specifically designed as a source of last resort to help those with limited assets or income, not for those with resources.
Medicare – Not designed to pay for extended care events, but in rare circumstances, will potentially help pay for up to 100 days of care.
4. Insurance Based Solutions
There are three primary ways to put a plan in place for an extended health care event when using an insurance based solution:
• Traditional LTC
Historically, the primary option is for private LTC planning. This method provides a robust benefit, but lacks flexibility. For those that don’t experience a claim, there is no additional benefit to the policy. Premiums aren’t guaranteed to be level and have historically experienced premium increases of 75-150% over the
lifetime of the policy. An additional concern with this type of insurance is the underwriting process which typically requires medical records, and blood and urine. This fully underwritten product leads to an average decline rate of 42% of all applicants. The decline rate for those over 65 who apply is over 60%.
• Combination LTC/Life
This method not only helps address the need for care, but also provides flexibility for alternate scenarios.
In addition to providing a large pool of money for LTC, it also provides a death benefit for those that don’t experience an LTC event as well as cash value in the event an individual wishes to cancel the policy at a later date. As with Traditional LTC, the underwriting process often excludes a large number of applicants that have waited too long before obtaining coverage.
• The Hybrid Professional LTC Plan - The Ideal Solution
The Hybrid Plan is a flexible, one-of-a-kind, Combination Life/LTC solution with unique underwriting concessions. It’s designed to be an efficient solution to protect retirement assets in the event of a Long Term Care claim. The Hybrid Pro offers the following:
» Underwriting – One-Time, Guarantee Issue policy with up to $400,000 of LTC benefits and $200,000 of Life Insurance. All applicants aged 70 and below and actively at work will be approved- regardless of past or current health conditions.