It can never happen to me is no way to look at the future.  If you knew that your home had a two-out-of-three chance of experiencing significant damage by fire, how would you protect yourself against that risk? Your first thoughts might be about moving to a different location! But what if all residences had that risk? Your options include accept the risk and do nothing, transfer the risk by purchasing insurance, or self-fund against the risk.

Taking Care of the Body Electric

When it comes to your future, make sure you see the big picture. After all, life is full of surprises: I was surprised to learn that more than 70% of us who live to “retirement” age will need long term care at some time in our lives. ¹

We don’t have to lose independence and control over our lives as we get older. Instead, long-term care planning is about living well as we age. Currently, 83% of long term care is provided in the home or community, while only 17% is provided in a nursing home. ² However, 40 percent of people over the age of 65 will need care in a nursing home for some period of time, and the average cost in Los Angeles is over $80,000 per year. ³

LTC is not just for the elderly:  Accidents and sudden illnesses can happen to anyone regardless of age or how well you take care of your health. 40 percent of people currently receiving long-term care are adults 18 to 64 years old. ⁴  Long-term care insurance can help protect against these potential financially devastating events. The key is to plan early, know our options, and to take action to ensure a good future.

Medicare doesn't cut it

Disability or health insurance do not provide long-term care, and in general neither does Medicare. In California Medi-Cal ⁵ will pay for long-term care, but a person’s assets generally have to be paid down to $2,000 or less in order to receive benefits. After death, Medi-Cal may recover costs of care from the estate. Steve Lopez’ article “State reaches Into grave for funds” describes one person’s discovery of this estate recovery program (Los Angeles Times, October 21, 2007).

Although Medicare may not cut it, the California Partnership can: The California Partnership for Long-Term Care ⁶ is an innovative program of the California Department of Health Services in cooperation with a select number of private insurance companies. These companies have agreed to offer high quality policies that must meet stringent requirements set by the Partnership and the State of California. It can take the guesswork out of selecting a high quality policy.

The Partnership’s mission is to provide affordable, quality long-term care insurance protection, so you won’t be forced to spend everything you’ve worked for on long-term care.

A unique feature of the Partnership policies is that it protects you from having to spend down your assets, should you use up your private long-term care benefits and need to apply for Medi-Cal assistance. The asset protection feature enables you to purchase policies with coverage equal to the amount of assets you want to protect from approximately $47,000 up to your total assets – with the assurance that these assets are protected for life, no matter how extended or expensive your long-term care needs may be. Without a Partnership policy, you could only achieve lifetime asset protection by purchasing lifetime coverage…something most people cannot afford. This added protection comes only with the purchase of a Partnership policy.

The bottom line: cost and eligibility.
Long-Term care insurance can be expensive because the costs it insures against are so high. The value is in spreading out possible costs over many years instead of having potentially massive expenses occur over a short period. If ltc insurance is an appropriate choice, there are powerful reasons not to delay purchasing: 1) If accepted, you’re covered from day one; 2) Unlike health insurance premiums that increase with a person’s age, long-term care premiums are determined by the age when you first obtain insurance. Rates typically rise after the age of 30, so it’s usually not cheaper to purchase than when you’re 30 years old, and 3) the cost of waiting exceeds the money you’d save by delaying—assuming that ltc insurance is eventually purchased.

Benefits need not be fixed, however, because of a policy feature called inflation protection. For example, a $310,000 lifetime benefit might cost a 48 year-old married person $2,000 during the first year of coverage. 30 years later at age 78, the lifetime benefit is now over $1,250,000 because of 5% annual compounding. The premium is still $2000 per year (It is possible that future rate increases may be approved by the State of California, affecting everyone equally. Individual rate increases are not allowed).

Regarding eligibility, there is no guarantee you will be accepted. The requirements vary based on an applicant’s age, medical history, medical follow-up, functionality, and cognitive awareness. Any change in your health increases your risk of being uninsurable. Below we’ll mention some other ways of planning for ltc expenses.

Upon whom are you counting for help if you need LTC?
Are you going to rely on friends and family? Whether they’re working or not, assisting you could be one of the most demanding situations your family and friends will ever encounter. Even if their intentions are good, will they be physically and emotionally capable of providing you with all the care you need? Could they afford the loss of income, and would you feel comfortable with the sacrifices your caregivers may have to make?

Q & A

What does LTC insurance cover?
It pays for a variety of services and supports to meet health or personal care needs over an extended period of time. Most long-term care is non-skilled personal care assistance, such as help performing everyday activities such as bathing, eating, dressing — even shopping, cleaning, cooking, and paying the bills.

What if I invest the premium cost myself instead of paying for insurance?
Because costs for long-term care continue to rise each year, not only do you need to consider the costs today, but also what sum may be needed in the future. By purchasing insurance you’re covered with the maximum benefit from day one. Here’s an example of the pot of money available from self-insuring vs. ltc insurance, courtesy of Metlife (Metropolitan Life Insurance Company).

How much can I afford to pay?
General guidelines suggest premium cost should not exceed 7% of income. You need adequate cash reserves and income to make sure you can afford the ongoing payments. The younger and healthier you are the better in terms of your premium cost. Long-term care insurance is not the right choice for every person.

What if I don’t need long-term care after all? Are there alternative ways of insuring the risk?
Most ltc policies allow a “return of premium” rider for additional cost. Other financial products include whole life insurance policies with a long-term care rider – if you need the long-term care benefits they are available to you, but if not you can use the account value yourself or pass to heirs.

Are there any options for those who are not insurable due to health conditions?
Some companies have a rider that allow an uninsurable spouse to receive benefits. Others specialize in insuring higher-risk people. Lastly, there are annuity products that include long-term care benefits. As with any insurance or financial product, there is no “one size fits all.” Financial suitability, needs and circumstances should determine the selection of any long-term care solution.

Summary
None of us want to be in a position to need long-term care. “It can never happen to me” can be a valid way to look at the future, as long as you have a plan for “If it happens to me.” But many people are simply unwilling to face up to the likelihood they will some day need long term care. Fully half of those surveyed agree with the statement, “long-term care is something I won’t need until I am older, and I don’t want to think about it now.” ⁷ According to the non-profit American Health Care Association (www.ahca.org), “Failure to prepare for the cost of a nursing facility stay or other long-term care is the primary cause of impoverishment among the elderly.”

For more information about the California Partnership for Long-Term Care visit http://www.dhcs.ca.gov/services/ltc/Pages/CPLTC.aspx

Michael Grodsky provides financial advisory (aquariusfinancial.com) and insurance services (www.aquariusltc.com) for artists and business owners. CA Insurance Lic. 0F43491. He can be reached at 888-777-2127 and at michael@aquariusfinancial.com

Registered Representative offering securities and investment advisory services through Independent Financial Group, LLC, a registered broker-dealer and investment advisor, member FINRA/SIPC. Aquarius Financial is not affiliated with IFG. This column is meant to provide general information, and should not be construed as providing investment, legal, or tax advice. Links are provided herein as a courtesy, and the referenced information is from sources we believe to be reliable; however, we cannot guarantee or represent that any are accurate or complete.

Image Credits

Ibanez_Studio_ST-200_electric_guitar_body. 2007. Photograph by Joko471. Released into the public domain by the photographer.

Scissors. Aug. 2005. Photo by Haragayato. Permission is granted to copy, distribute and/or modify this document under the terms of the GNU Free Documentation license.

Footnotes