Remember when you were younger? You got out of college, landed that first great job, and started a family. While not everyone does those things in that order the big concern when you are younger is mortality. An early death creates a financial disaster for a spouse and children.
Mortality is the term used for the number of people who died within a population. Early death can be caused by an accident or a sudden or chronic health illness. Life insurance is often used to manage the risk of early death to protect your family from the loss of income from the person who passed away.
As you get older so does your family. Your children get into college and graduate and start to have their own careers and families. Your concern for mortality becomes more personal but has less impact on your family’s finances.
This is when morbidity comes into the picture. Morbidity refers to the state of being diseased or unhealthy within a population. Once you get into your “fragile 50’s” you start having health issues which start to increase your morbidity risk. It may start with high blood pressure, high cholesterol, a few extra pounds, arthritis, and joint issues and continues from there.
Morbidity means long-term care. As we age the human body gets more fragile. However, the advances in medical science allow us to live longer. The health issues which used to kill us no longer do. This means longevity. With longevity comes a much higher risk of needing long-term care services and supports. This is help with normal activities of daily living – otherwise known as ADL’s.
These ADL’s are the things we take for granted today and had to learn when we were very young. They include eating, dressing, bathing, transferring from one location to another, going to the bathroom and holding our bowels. At some point, due to illnesses, accidents or the impact of aging, we will need help with these activities or require supervision due to cognitive decline. This is Alzheimer’s or other forms of dementia.
This “morbidity” requires planning to address the financial costs and burdens that come from aging. Who pays for long-term care services? You do. Health insurance and later, once you are 65, Medicare and any Medicare Supplement you will carry, will only pay a small amount of skilled care. The problem is most people require “custodial care”. This is the help with ADL’s or supervision due to cognitive decline.
The cost of these services can drain even a substantial amount of assets. Most long-term care services are at home, adult day care, assisted living or memory care. All of this is not cheap. But the most expensive is skilled nursing home care. The Genworth Cost of Care study indicates the national average for skilled nursing homes in the United States runs $97,455 a year. If you are age 55 today the cost of this same nursing home, based on past trends, will run $204,049 a year when you are age 80. How much of a dent will that have on your lifestyle? A 44-hour week of home care now averages $49,192 in one year. In 2042 this will average $102,997 a year! How about assisted living? The national average runs today $45,000 a year. In 2042, just 25 years from now, it will average $94,220 a year.
The cost of care does vary depending on where you live. You can find your state averages on the LTC NEWS MAP: https://www.ltcnews.com/resources/state-information
The CDC reports one in four adults has a disability. Not every disability requires extended care services but as we age this risk does increase. Most long-term care services are provided by aides:
The figure above is a bar chart showing that in 2016, aides provided more hours of care in the major sectors of long-term care than the other staffing types shown. Aides accounted for 59% of all staffing hours in nursing homes, compared with licensed practical or vocational nurses (21%), registered nurses (13%), activities staff members (5%), and social workers (2%). Aides accounted for 76% of all staffing hours in residential care communities, in contrast to activities staff members (10%), registered nurses (7%), licensed practical or vocational nurses (6%), and social workers (1%). In adult day services centers, aides provided 39% of all staffing hours, followed by activities staff members (30%), registered nurses (15%), licensed practical or vocational nurses (9%), and social workers (6%).
QuickStats: Percentage Distribution of Long-Term Care Staffing Hours, by Staff Member Type and Sector — the United States, 2016. MMWR Morb Mortal Wkly Rep 2018;67:506. DOI: http://dx.doi.org/10.15585/mmwr.mm6717a6
Most long-term care services are provided in the community … mostly in a person’s own home.
For those receiving benefits from Long-Term Care Insurance, you see most claimants are receiving care at home. The American Association for Long-Term Care Insurance (AALTCI) study of claims from these policies shows 52.1 percent of all new claims in 2017 began in the home setting.
“People mistakenly associate Long-Term Care Insurance exclusively with skilled nursing home care,” said Jesse Slome, the director of the AALTCI. The AALTCI is a national education and advocacy group.
The AALTCI says the major insurance companies in the industry paid over $9.2 Billion in claim benefits in 2017 helping American families address the costs and burdens that come from getting older or other health issues or accident which cause long-term care.
The National Association of Insurance Commissioners (NAIC) LTC Experience Report (May 2016) says over 100 insurance companies are paying over $10 Billion per year in Long-Term Care Insurance claims.
The NAIC report says that from 1994 to 2014 slightly less than $100 Billion in claims have been paid to American families. The NAIC study also shows those with Long-Term Care Insurance receive more paid care at home than those who don’t.
This is a big risk as medical science continues to give us longevity. The US Department of Health and Human Services indicates that if you reach the age of 65 you will have a seven in ten chance of needing some type of long-term care service before you leave the world.
It doesn’t end there. The same forces that cause more of us to require long-term care also impact end-of-life. Hospice has become an important part of our end-of-life. Medicare does have hospice benefits but often you may require more services and for longer periods of time. Long-Term Care Insurance will pay for hospice services at home or in a facility if required.
If you think your family can be caregivers – think again. Caregiving is very hard work. It adds a tremendous amount of stress both physically and mentally to loved ones. Also keep in mind your adult children have their own careers, families and responsibilities. Being a caregiver is probably not the best plan to address longevity issues.
Just like you probably did when you were younger and planned for your early mortality with some type of life insurance, now you need to plan for mortality – the longevity problems caused by aging due to illnesses, accidents or just getting old.
Long-Term Care Insurance is the tool recommended by experts. There are three types of plans:
- Traditional – This is a pure insurance contract has tax advantages, low premiums if you plan prior to retirement and in most states partnership benefits which provide additional asset protection.
- Asset Based or “Hybrid” – This is either a life insurance policy or annuity with a rider which covers long-term care services. While many require you to be “terminal” the best ones have the same long-term care triggers as the traditional plans. The big selling point for some people is the death benefit if you’re lucky enough to never need long-term care. In addition, if you own a life insurance policy or annuity with enough cash value you can complete a “1035 tax-free exchange” to one of these policies.
- Short Duration – This is a mini-policy that will cover a year, sometimes two of long-term care. Some of these plans only cover care at home, others include facilities. Generally, they have reduced underwriting criteria as well.
A Long-Term Care Insurance specialist can make the proper recommendations for you based on your situation. They should take the time and ask many questions about your health, family history, finances, and retirement plans and your general concerns about how your family may – or may not be involved in your future care.
Premiums are actually very affordable for most people. Key to premium costs is your age at application, your health and the amount of benefit you wish to apply for. Averages published in articles are often very exaggerated. If you purchase in your 40s or 50s you can obtain outstanding coverage for $150 a month or less. Premiums can vary widely based on company and policy design. This is why you should seek a specialist who works with multiple companies and has experience in policy design and claims.
LTC NEWS can help you find a licensed specialist who represents all the major companies, has substantial knowledge of underwriting, policy design, and claims - https://www.ltcnews.com/contact
The best time to plan is before retirement as you can enjoy much lower premiums and perhaps obtain preferred health discounts.
Nobody ever said life was easy. As we age it really doesn’t get any easier unless you plan in advance and give yourself, and your family, peace-of-mind.