Understanding Long Term Care

Long term care is a topic that we all know about but not many individuals are getting ahead and planning for it, even though 70% of people turning 65 will need some type of long term care services in their lifetimes. [Morningstar]

The easiest way to think about long term care is as needing assistance with day-to-day activities due to an illness that lasts a long time – this might be a chronic illness, disability, or another condition. Some people need long term care for several months, while others need it for years.  While many people receive long term care at home provided by friends and family, there are also home and community-based services offered by organizations. Depending on your situation, you might also choose to move into a different type of living arrangement.

Unfortunately, without proper planning, the need for long term care can have an adverse effect on your family. Planning for long term care means assessing whether where you will live now will support your changing needs as you get older, taking care of yourself to improve your changes for a health future, knowing the costs of long term care and learning about ways to cover them, and creating the proper legal instructions that will keep you in charge of decisions about your care and finances.

How do you pay for it?

There are a few different ways to cover the cost of long term care. You may have enough assets to self- insure against the risk. With this option, there are pros and cons and a risk analysis of how this may impact you and your family should be conducted to see if this makes sense for your scenario. If you do not another option is by purchasing a long term care insurance policy. A long term care insurance policy helps cover the costs of your long-term care.  Long term care insurance is different than regular health insurance; regular health insurance typically only covers short nursing home stays or limited amounts of home health care when you require skilled nursing rehab. Long term care insurance is mainly purchased to protect your savings and to give you more choices for care (Medicaid only gives you so many options).

When it come to your options for long term care insurance you can select traditional or hybrid. With a traditional LTC policy, you elect your benefits at the outset (similar to auto and health insurance). Your premium is guaranteed renewable, meaning that the insurance company cannot cancel your coverage as long as you pay your premium, but your premium is not guaranteed (meaning they can increase it if needed). A hybrid policy is where a person can pay a one-time lump sum premium or by paying over several years.  With this type of policy, if long term care is needed then the policy will pay benefits toward those expenses. The benefits are paid in an amount chosen when the policy is purchased, and expressed as an amount per day, month, or year.  If long term care is not needed, the policy works much like a traditional life insurance policy, with a death benefit paid to a beneficiary when the insured person dies. Additionally, many hybrid long term care plans still offer the ability to purchase a policy in one lump sum — a feature no longer available with traditional plans.

Once you have determined which long term care insurance option best meets your needs, it is important to shop around for a policy.  If you do not know where to start, reach out to your state insurance department for a list of companies approved to sell long term care insurance policies in your state and be sure to find out whether there were complaints about any of the companies as well.  Next, compare information and costs from at least three major insurance companies – find out how often and by how much the companies have increased their premiums. Finally, before you sign, get a written copy of any policy, and review it carefully with your attorney or financial adviser.

While none of us can predict the future, at Client First Capital, our goal is to help you plan for the uncertainty of life. During our meeting with you, we will work with you to understand your situation and help you plan for unexpected health events that might impact you and your family. We will make sure you understand spousal benefits and all of the different financial planning strategies that should be in place to protect your assets.

Related: Everything You Need To Know About Critical Illness Coverage