According to the US Department of Health and Human Services, over 70% of Americans 65 and older will need long-term care services at some time in their life
Lhong Term Care Insurance (LTCI) is a topic that everyone eventually needs to know about. To explain it to you, I’ve interviewed Meridith Pensack, an expert on the subject. I know you’re going to find this helpful.
Dr. Mache Seibel: Let’s begin by asking you, “What exactly is long term care insurance?”
Meridith Pensack: Long term care insurance is the coverage that pays for care no matter where that care is received. Although it does pay for care in assisted living or in a nursing home, the lion share of people tend to use it right in their own home.
Dr. Seibel: Who exactly needs that kind of insurance?
Ms. Pensack: People who need help taking care of themselves whether it’s due to a cognitive or a physical issue. We really don’t know what will happen to us down the road, so it’s really pretty much anyone.
Dr. Seibel: How is it different from health insurance?
Ms. Pensack: Health insurance and Medicare and Medicare supplement insurance doesn’t pay for custodial care. It will pay for skilled care like hospital visits, doctor’s visits, prescription drugs; that type of thing; but it won’t pay for the care to help you live your life on a day-to-day basis.
Dr. Seibel: So long-term care insurance is going to help the quality of your life beyond just trying to get well.
Ms. Pensack: Absolutely, because if you don’t have this kind of protection you might have to rely upon family members or a healthy spouse to take care of you and that’s not always ideal.
Dr. Seibel: How do you go about looking for long term care insurance?
Ms. Pensack: I would say find someone who is specialized in this area and do some comparisons. Look at a couple different companies, and then that agent should be able to help you drill down to the most important pieces of a plan.
Dr. Seibel: If you plan for this, what are some of the important things that you really want to know?
Ms. Pensack: Here are the key components of a plan:
- How much will they pay me per month or per day?
- How long will they pay me?
When we multiply those two together, we get a pool of money. Of course, we don’t know how long we’re going to need care. So the length of time is really a bit of a misnomer, it’s really more the pool of money you will have available to use. We throw in inflation protection to grow the pool of money so that the plan makes sense years and years down the road, not just today. Then we have a couple of extra riders that would enhance the plan.
Health insurance won’t pay for the care to help you live your life on a day-to-day basis
Dr. Seibel: Is there anything in the fine print that people should be looking for?
Ms. Pensack: Once an insurance carrier accepts you based upon your health today, the only way that they cannot honor a legitimate claim is if you dropped the plan by not paying for it. So, the kinds of things that are excluded from most plans are things like act of war, intentionally harming yourself, drug or alcohol detoxification – those kinds of things. But short of that, they will not exclude a legitimate claim because someone needs help physically or cognitively.
Dr. Seibel: Is long-term care the kind of help that you get when someone comes to your home to help you with things?
Ms. Pensack: That’s what it mostly is. An aid for example, to help you do tasks like grocery shopping, cooking, cleaning, laundry, take you to the doctor – that type of thing.
Dr. Seibel: These are important tasks as you get older or you if have some kind of a disability problem or illness, or maybe you have surgery and you’re at home and you need help. Is that the kind of thing it helps?
Ms. Pensack: Yes, but in order to satisfy the definition of a federally tax qualified long-term care insurance plan, when you trigger the benefits, you stop paying the insurance and they pay you the benefit. Here’s that definition: When your doctor is guessing for at least 90 days — that’s the long part of long term care insurance — that you’ll need help with at least 2 out of 6 activities of daily living no matter what your age, no matter what the reason.
Here are the activities of daily living:
- Transferring – the act of moving from a bed to a chair or across the room – or
- You have a significant cognitive impairment, some kind of memory loss.
Dr. Seibel: Those are pretty basic necessities for life when you’re having a problem.
Ms. Pensack: People don’t usually think about that because most of us are in good health. But sometimes when a parent or a family member needs care, we say, “Oh, maybe this is something we should consider for ourselves so we’re not going to put our kids through this.”
Dr. Seibel: So, how do you say, “It’s right for me, I’m going to make my decision?”
Ms. Pensack: I would suggest that you reach out and find an agent that specializes in long term care insurance. Sit down and have an honest conversation about what your goals and needs might be. Have that person do some research on your behalf, and make some recommendations and work with that person to see if they can tailor a plan that would be appropriate for you.
Dr. Seibel: When does the person say, “Hey, I better check this out”?
Ms. Pensack: A tongue-in-cheek answer would be before you get a diagnosis. But, the real answer would be when you are in good health; and it will never be cheaper than the first time that you look into it. The younger and healthier you are, the less expensive the premium will be. It always works out mathematically better if you pay a low premium for more years than a much higher premium for fewer years.
Dr. Seibel: So say you’re 50 or 55 and you’re in good health and you’re not really thinking about having a problem right now. You’re saying it’s better today to pay for a longer period at a lower premium than to wait until you’re 75 to check it out.
The younger and healthier you are, the less expensive the premium will be
Ms. Pensack: Absolutely. The younger you are, the cheaper the premium. The insurance carriers also in-crease premiums for brand new applicants every now and then. You would be grandfathered into your plan even though new people would have to pay more. That combined with your birthday is a reason why it would be best to look into this as soon as you first think of it.
Dr. Seibel: What is ‘shared benefit rider?’
Ms. Pensack: It’s a feature that links plans together between the husband and the wife, so if one spouse doesn’t need it, then that spouse’s benefit is therefore the other spouse. If one has a longer illness, then once they deplete their own benefits, they can then use their spouse’s, so it literally doubles your coverage but it does not at all double the price of the plan.
Dr. Seibel: That sounds like something people should look into. What about the ‘waiting period?’ Is there a window before it becomes active?
Ms. Pensack: The most common deductible is not in the first 90 days. However, when I work with people, I al-ways include a feature called a zero-day elimination period for home care. In short, it means no deductible if you use the plan at home.
Dr. Seibel: What is an ‘inflation rider?’
Ms. Pensack: It’s a feature of the plan that I think is actually the most important. It grows your benefits so that your benefit makes sense not only today but many, many years down the road because it really wouldn’t do you any good to have a plan that had a flat benefit because prices are going to continue to increase.
Dr. Seibel: Is there anything else that might be important for people to know?
Ms. Pensack: Here are five important tips:
- Find a premium level that you’re comfortable with because no matter how great a benefit is, if the premium isn’t comfortable to pay, in the long run it won’t do you any good. So really look at several different options in terms of how much benefit and how much cost.
- As soon as you first think that it might make sense, do the research even if you decide not to proceed, at least you really have an under-standing about what it is and what it could cost.
- Don’t wait until you already have a diagnosis. My phone rings off the hook with people who call up and say, “My wife just got Alzheimer’s, can I get a long term care insurance?” Look into it before you get a health change.
- For couples, ask your agent to show you what a ‘shared rider’ would do for you in terms of linking your benefits together and really maximizing your coverage.
- If what’s important to you is not burdening your children and making sure that your retirement portfolio lasts you throughout your retirement, consider the coverage.
Couples should ask about a ‘shared rider’ to link your benefits and maximize your coverage
Again, I’m not telling people you have to get this insurance. But you have to ask yourself what are the consequences to my family and to my portfolio if I don’t get long term care insurance? If I had a stroke some day and had to start draining my assets to pay for my care, I could have avoided that situation by doing the research when it was possible. Don’t procrastinate. That is my parting tip.