We’re all getting older. And it’s much better than the alternative. But the greatest fear of retirees is running out of money in their lifetime. And nothing can devastate financial plans like the need for costly long-term custodial care (LTC), either at home or in assisted living.
According to Genworth’s annual cost of care survey, in 2017 assisted living care cost $3,750 per month on average, and a home health aide cost $4,099 per month — and these costs were far higher in urban areas. It’s estimated that one in seven people turning age 65 today will need some form of long-term care.
So what happens when Mom or Dad — or you — need help with basic activities of daily living such as dressing, bathing, toileting, feeding or even getting in and out of bed or a chair? No one wants to think about it. And that’s the problem.
While we all buy homeowner’s or renter’s policies to insure us against a fire, relatively few insure against the far greater chance they’ll need this kind of care.
Some people think they can qualify for state-run Medicaid programs to pay for their care by transferring assets to their children. But Medicaid programs can look back five years or more to recover those transferred assets. Meanwhile, you’ve become impoverished — and at the mercy of your heirs who now control the purse!
Even worse: Do you want the kind of care your state Medicaid program will provide when demand from the baby boom generation overwhelms state budgets?
Fear of Rising Premiums
In recent years, insurance companies have had to raise LTC insurance premiums dramatically. I first wrote about this problem more than five years ago. The insurers made mistakes in predicting how increasing longevity would impact how much care people would use. Low interest rates contributed to the problem, hurting insurers’ investments. States were forced to grant requests for premium increases so insurers could remain solvent to pay claims.
And make no mistake: Many LTC policies are now actively paying out benefits — about $9.2 billion in claims in 2017, about 6.4 percent more than they paid out in 2016, according to the American Association for Long Term Care Insurance.
If you receive a premium increase notice on a LTC insurance policy on which you have paid premiums for years, don’t drop the policy. Long term care insurance expert Honey Leveen (www.HoneyLeveen.com) says, “It is almost never necessary to drop a LTC policy due to a rate hike.” She works with people to adjust the policy payout, shorten the length of coverage, or adjust the inflation protection.
Don’t give the insurers the satisfaction of simply dropping your policy and keeping all your paid-in premiums just because you’re angry. Get expert advice on the alternatives.
A LTC Insurance Alternative: “Combo Policies”
If you haven’t purchased LTC insurance yet and fear rising premiums in the future, consider one of the new “combo” life/LTC policies. These policies let you deposit a lump sum that locks in a guaranteed pool of money to pay for long term care expenses. In the event that you don’t need care, your beneficiaries get the death benefit.
Brian Gordon of MAGA Ltd. (www.magaltc.com) says the vast majority of his company’s sales these days are combination life/LTC policies for people aged 40 to 65. But even seniors can benefit these policies.
For example, he says, a 65-year-old woman could deposit $98,000 into a OneAmerica Asset-Care policy, which combines life and LTC coverage. If she died the next day — or at any time without using the care portion — her heirs would get a death benefit of $117,512. But if she needed care, she could access $4,074 per month ($48,888 per year) for an unlimited number of years. Younger buyers can deposit less and get higher benefits — if they are in good health. And couples can purchase joint policies to save money.
It’s worth examining all options with an expert before concluding you can’t afford long-term care insurance. (The two experts I have linked in this column are my trusted resources.) After all, if you need the care, these policies could be the biggest bargain of your life. And that’s the Savage Truth.