In my previous blog post, Financial Planning for Women – Part 2 (Social Security), I talked about how the guidance we provide in the early years of retirement places women in the best possible position to live their final years with grace, security, and dignity. In this post, we will discuss Long-Term Care and why it’s so important for a woman’s longevity.
Imagine that you are 83 years old, your husband died 4 years ago and your mental capacity is starting to slip. You have two wonderful adult children with their own families. One lives in Atlanta, the other in Denver, but you live in Huntington Beach. You and your husband did a great job saving for retirement 20 years ago, but your resources are starting to dwindle and you want to sell your house and move to an assisted living community. The cost for assisted living is $6,000 per month for something “nice” in Orange County and when a nursing home with a memory care unit is needed later in life, it jumps to $10,000 per month. The proceeds from your house and investment portfolio may cover you for 5 more years, but given your good physical health and family history, you will likely live another 10-15 years and you don’t want to run out of money or be a burden to your kids. Thankfully, you purchased long-term care insurance 25 years ago and you have the peace of mind knowing that it will help cover the cost.
Inspired Financial doesn’t sell long-term care insurance, but as financial planners, we do educate you on the pros and cons and determine if you need it based on your unique situation. If so, we advise you on what is the best coverage, the best way to pay for it, and when you should get it. Then, we help you compare several competitive quotes from an independent insurance broker that is not captive to only one provider. Later in life, we help you determine when you can or should use it and help you coordinate it with the insurance company and your caregivers.
Below is some general information that you might find helpful:
Long-term care insurance helps cover the care and cost associated with your basic activities of daily living (ADLs):
- Transferring (walking)
Typically, if you are unable to do two of the six activities for more than 90 days, long-term care insurance will begin to cover the costs based on the coverage level in your policy. There are different types of care that it can cover: in-home care, assisted living, adult daycare, and nursing home. People tend to confuse Medicare with long-term care. Medicare helps cover the costs associated with your medical needs when you’re in the hospital and seeing your doctor. Medicare can cover some long-term care needs, but it is very limited.
Long-term care insurance is really important for women because they generally live longer, earn less, take care of others more than themselves, outlive family members, and have longer lasting health issues. Just visit any senior community and you will see that a very high percentage are women. That is why we review our client’s long-term care needs when they are in their mid-50’s so they have the protection they need during their later years.
Over three-fourths (75.7%) of residents in assisted living communities are women. Their average age at admission is 85.7. 1
Long-term care insurance is something you must have in place before you need it. If you wait until you’re older, you have health issues, or you are running out of money, it will be too late.
People often worry that long-term care insurance is too expensive, the premiums are subject to rate hikes, and if you never use it, you lose it. That describes a traditional type of policy, but there are hybrid policies today that address those concerns. A hybrid policy has a life insurance and long-term care component to it. You can buy it with one lump sum payment or pay the premiums over 10 years for example. Once it is paid up, you remove the risk of rates going up and you remove the risk of paying annual premiums into perpetuity. A hybrid policy also has a death benefit so that if you never use the long-term care benefit, there is at least a death benefit that can be left to your heirs in lieu of the premiums you paid.
Long-term care insurance isn’t the right fit for everyone. The Society of Actuaries states that for those with assets of less than $250,000, long-term care insurance may not make sense. You will likely spend down your nest egg and become eligible for Medicaid. Long-term care works well for those with financial resources in the $1-$3 million range. Folks with more than $3 million can self-insure for the most part, but may still want to consider a small policy to gain access to the care coordination services that long-term care companies provide. Some strategies allow for a tax deduction, use of Health Savings Account (HSA) funds, or doing a 1035 exchange with a paid-up life insurance policy.
As your Certified Financial Planner™ (CFP®) professional, Inspired Financial evaluates your financial resources, your living arrangements, the coordination of care, estate planning, taxes, and insurance. We provide professional guidance and support that helps you navigate and plan for the right care that is best for you, so you can lead a safe and secure life.