Long-term care insurance …why it’s so important
“One out of every two people will need long-term care at some point in their lifetime. And over 70% of those over 65 will require long-term care,” (http://budurl.com/hfl9). With stats like that and the senior population growing, long-term care insurance is no longer an option–it’s a necessity. In this article, I’ll share why long-term care insurance (LTCi) should be an essential part of your financial planning.
There are two main reasons for getting long-term care insurance. The first reason is being unable to afford paying cash for your long-term care needs such as recuperating from a chronic disease, rehabilitation from major surgery, or other unforeseen impairment. Another name for paying cash is “self-insuring.” Most people cannot afford to set aside a large sum of money to pay the cost of their long-term care. Contrary to what many believe, long-term medical care isn’t generally covered by standard health insurance or Medicare. Medicare may cover a portion of your stay providing you qualify and the institution you’re being transferred to qualifies. If not, those costs are borne by you.
The second reason is to protect your assets, such as your retirement lifestyle, including your home, cars, checking and saving accounts, and insurance policies. Why would you need to protect these assets? Because if a medical crisis strikes requiring a period of rehabilitation or long-term care, and you aren’t able to show proof of insurance or self-insure, the state will most likely take care of you. That’s the good news. The bad news is there’s no guarantee they will care for you, and if they do, you WILL pay for it. If you don’t, they will put a lien against your assets for the cost of your care. You will have to come up with the cash to pay the bill or they can seize your property, in the worst case scenario. Essentially your estate is liquidated to the extent of the cost of your care plus any other fees they tack on. If there are any assets left, they may go to your family. I know in some states you are protected from losing your house providing you are still living in it or intend to move back into it. If you have moved out of your home and are permanently living in an assisted living facility or receiving nursing home care without any intention of returning to it, the State can force the sale of the home.
Long-term care insurance fulfills the need for this type of insurance coverage for these scenarios. It provides you insurance to cover the cost of the care you need between the hospital and complete recovery. LTCi premiums can vary substantially. In many cases, a low-cost premium may not provide you with the level of coverage you are actually seeking. It is important to understand the components of a long-term care policy and how to calculate your need for coverage, topics of future articles.
This matter is very close to my heart. My mother, who recently passed away from cancer, did not have a long-term care policy. As a result, when her health finally declined to the point where she needed 24-hour care prior to hospice, two of my family members literally moved into her home for the last 60 days of her life because we didn’t have the money to pay for in-home care. It was a huge sacrifice; one whose magnitude we did not realize until after the fact.
Another family member who’s 84 years old now requires 24-hour care. He also didn’t have a LTCi policy—he felt he didn’t need it. He was as “healthy as a horse!” That was true until he turned 82 and had a major stroke. Now, once quite strong and unstoppable, is now unable to use one side of his body and has bouts of dementia. His prognosis for improvement is deteriorating with each day. A caretaker has moved into the home and is there 24 hours a day, seven days a week. His wife pays cash for his at-home care, not Medicare. Their savings are steadily being drained by this exorbitant expense.
In both these situations, I wish my family would have made different choices. Sure the premiums are an additional expense. However, depending on the age you start your policy, the premiums could be a minor fraction compared to the total cost of self-insuring. I hope you learn from my families’ experiences. As I’ve said before, advice is cheap. It’s the mistakes that are costly.
© 2009 Start Smart Advisor ™, Inc.
For more info: Check out this article on frequently asked questions about Medi-Cal and long term care — http://budurl.com/fqag.
“I don’t need life insurance, I’m only 35!”
I was visiting my associate the other day and popped my head into her office to ask how her day was going. She had a puzzled look on her face and said, “I’ve had better days. Have you ever had to deliver on a life insurance claim?” The look on her face was one of complete and utter sadness. She went on to tell me that three years ago she had sat with her client to discuss life insurance. He was a young man with a wife and three children. He really believed that at the age of 35 he was too young to be seriously looking at life insurance. However, my associate saw it differently and continued to educate his wife and him. At the end of their conversation, he and his wife decided to apply for a life insurance policy in the amount of $1.5 million to protect him and his family. Little did they know that in three years time he would be killed quite unexpectedly by a drunk driver heading the wrong direction on the freeway on-ramp. My associate looked at me and said, “I can’t believe I have to deliver this check.”
Now contrast that story with one of my own. When I first got started in finance, I began as a life agent. I had met a very young couple, had connected with them, and made an appointment to discuss the need for life insurance. In the end we took out policies on both of them. A couple of years went by, and in financial terms, they had progressed rather nicely. They had purchased a second home, which was part of their plan and she was pregnant with their first child. It was a very happy time for them. But with the new mortgage and a baby on the way, they had let their insurance lapse. I made several calls to them to reinstate the insurance however they were all to no avail. Sadly, at the age of 32 and on Thanksgiving Day, Sam (not his real name) was hit head-on while on his motorcycle by an RV traveling in his lane. He was killed instantly — he never knew what hit him. The saddest part is he and his wife had just celebrated the birth of their first child not more than 60 days before hand. Sam left his wife and son essentially penniless. She had quit her job to raise their boy and Sam, as the primary breadwinner, was no longer there. Their original plan was for her to stay home and raise their boy. However now she was juggling grief, raising their son on her own, and working two days a week to make ends meet.
To finish the story, she sold the second home to cover the costs of burying Sam and providing income so she could stay home and take care of their beloved baby. They were very fortunate in the fact that she was able to sell the home quite quickly — that would not be the case today.
Life insurance can feel like a catch 22. For some folks they feel that if they get life insurance it means they’re going to die and so they don’t. But for others who understand the purpose and the need of life insurance, it saves them from a tragic financial nightmare. My associate’s surviving family although grieving for the loss of their beloved husband and father, will soon have the financial resources to take care of anything they need, with proper management, for the rest of their lives. My clients on the other hand have to abandon their future plans in order to provide for their family.
None of us are planning on leaving this earth before our time. However for some of us “our time” comes much earlier in life than we would prefer. Preparing for the care of our families in this kind of tragedy is essential to the survival of the family, the fulfillment of life plans such as college educations, paying off the mortgage, and achieving other life goals that were important to the family before the unexpected death.
So I ask you, which family would you rather be in at the time of crisis? The choice is yours.
© 2009 Start Smart Advisor
