According to 2005 U.S. Census Bureau projections, more than 36 million Americans are age 65 and older. By 2025 that number is expected to more than double.
While many may never experience illness requiring long-term nursing facility or home care, an estimated 22 million seniors will require long-term care by the year 2020. With the current cost of an average nursing home stay hovering around $65,000 annually, paying for care can devastate retirement funds.
But, according to certified financial planner Carina Diamond, managing partner of SS&G Investment Services LLC, a regional wealth management firm, long-term care insurance can preserve hard-earned assets.
Smart Business spoke with Diamond about how long-term care insurance can protect personal assets and how businesses can help their employees prepare for later life needs.
What is long-term care insurance, and what are the benefits of obtaining it?
Long-term care insurance is a policy that covers nursing home care and home health care services. Some policies have also expanded to include adult day care and assisted living costs. That coverage may allow you to stay in your own home instead of having to go into a nursing home.
It is one way to ensure that you get your retirement savings, or that your children get their inheritance. It also increases your chances that you won’t impoverish yourself or your spouse or partner if you need long-term care at some point.
When is the best time to purchase a policy?
If a person is in their 20s, long-term care insurance is probably not something they think about. But a person in their 50s or even in their 40s should consider it.
What do premiums cost?
For people in their 40s and 50s who are in good health, the premiums are very reasonable. Depending upon the policy and coverage, cost for a comprehensive policy can range from $1,000 per year for a person in their 40s to $2,000 per year or more for a person in their 50s.
What should people consider before buying a policy?
One of the first things to look at is the elimination, or waiting period — that’s 30, 60 or 90 days before benefits begin. It’s like a deductible. The sweet spot is 90 days. Before 90 days, premiums are going to be higher; after 90 days, they aren’t significantly reduced enough to make a difference.
The next thing to look at is the daily benefit. Most range from $100 to $150 per day. That may seem like a good amount now, but 10 or 20 years from now, that’s going to look like peanuts.
There are riders that can be placed on the policy that cover cost of living increases — usually about 5 percent per year. It makes the policy more expensive, but cost for long-term care is expected to increase faster than inflation, so this is a critical rider to have.
How do people qualify for benefits?
Benefits typically begin after the waiting period, when a person can’t perform several activities of daily living, such as eating, bathing, dressing, toileting and transferring. That determination must be made by your doctor.
After that, payments must be made to a bona fide long-term care provider. Policies won’t pay a family member or a caregiver who is not recognized. Some policies will pay the policyholder directly.
Can a policy be purchased for someone else?
Some people are taking policies out for their parents because they know they will have to look after them someday. However, in order to take a policy out on another person, that person must agree to it.
Can businesses include long-term care as an employee benefit?
Yes. Companies often look at long-term care coverage as a recruiting and retention tool. For certain management positions, it’s becoming part of the benefits package.
Coverage for groups may be guaranteed standard issue with no underwriting. That means that even if there is someone in the organization who is not in the best of health, the coverage is provided with no questions asked.
Also, companies are not required to offer it to all employees. While companies can’t discriminate according to age, they can offer the coverage only to people in certain levels of management positions.
What else should people keep in mind about long-term care insurance?
The important thing is that people don’t know they need long-term care insurance until it’s too late. But many people have misconceptions about what Medicare and Medicaid cover. Both Medicare and Medicaid coverage are extremely limited. The good news is that long-term health insurance is becoming a household term.
Carina Diamond, CFP, MBA, is managing partner of SS&G Investment Services LLC. Reach her at [email protected] or 1-800-871-0985.
