By Susan Suben
Long-term care insurance is worth it If you become ill — if you don’t, it probably isn’t. But do you know what your future has in store for you?
Some of us have health issues or family members with a litany of health conditions that make it more likely we will need long-term care (LTC). Those of us who are healthy or had relatives who lived into their 90s never needing LTC may feel less convinced that planning is necessary. The problem is that life isn’t what we hope or expect it to be. It just is.
Individuals generally plan for LTC because they have experienced a LTC situation with family or friends, want to preserve their assets in order to leave a legacy, want to stay at home if they need care, maintain the standard of living of a spouse/partner and, most importantly, they do not want be a burden to their families. Individuals who don’t plan, generally have never experienced a LTC situation, feel their children don’t need an inheritance, and decide to take their chances thinking they will never get ill.
What I hear all the time is that the premiums are expensive. Are they too expensive compared to the cost of home care, assisted living or nursing home care? The answer is no!
Here is a scenario that involved one of my clients. After reading their story, decide if LTC planning would have been worth it.
Frank and Barbara were happily married for 35 years when their financial planner brought up the topic of LTC planning. They were both working at the time, owned their house and a camp, traveled, and had a son who was engaged in a successful career. Their retirement portfolio was performing nicely and their financial planner felt they had enough discretionary income to afford a LTC insurance premium. He referred them to me.
After several months of discussion, Frank and Barbara decided not to purchase policies. The reasons they gave were — we can save enough if something happens to us and our son does not need our money. The cost of the annual premium for both of them would have been a little over 1 percent of their entire estate.
About a year later, Frank’s health started to deteriorate. He developed diabetes that eventually required an insulin pump which led to other side effects of the disease. He was in and out of the hospital and could no longer work. Barbara took more and more time off from work. As if things could not get worse, Frank developed Alzheimer’s at age 63. His health insurance did not reimburse for his LTC expenses. About a year later, Frank could no longer be left alone. Barbara had to hire an aide to take care of him during the week so that she could work. It cost her $25 an hour for eight hours, five days a week for a total of $1,000 per week — or $4,000 per month. On the weekends, she was his primary caregiver. This went on for about two years with Frank eventually being placed in a nursing home that cost $10,000 a month. He died almost two years later. Barbara had to cash in some of their retirement savings, and eventually sold their camp to raise funds for Frank’s care.
When Barbara and Frank looked into purchasing LTC insurance they were both 58 years old. The annual premium for both of them would have been $5,300.95 — $3,275.71 for Barbara; $2,025.24 for Frank — which included spousal discounts. Barbara’s premium was higher due to gender-based pricing.
Initially, the policy would have paid $250 per day for home care, adult day care, assisted living and nursing home care with 3 percent compound inflation for three years of coverage. If Frank had paid his premium for six years until he became ill, the total would have been $12,151.44. His daily benefit over that six-year period would have grown to $298.51 giving him a pool of money worth $326,868.
Barbara paid approximately $336,000 out of pocket over the four years for Franks’ care.
The policy pool of money would have easily covered Frank’s care. Barbara would not have needed to sell their camp or dip into their retirement savings. She would have been able to maintain her lifestyle and standard of living.
Important to note is that once Frank went on claim, his premium would have been waived.
Let’s say Barbara paid her premium for 25 years. She would have spent $81,892.75. Add that to Frank’s premium paid for six years and the total would have been $94,044.19 — well below the $336,000 she spent out of pocket for Frank’s care. Remember, the premium was less than 1 percent of their asset base.
Now answer the question. Would it have been worth it for them to plan for LTC? Is it worth it for you to plan? The answer is a resounding yes because we simply do not know what life has waiting for us.
Susan Suben, MS, CSA, is president of Long Term Care Associates, Inc. and Elder Care Planning. She is a consultant for Canandaigua National Bank & Trust Company. Contact her at 800-422-2655 or by email at firstname.lastname@example.org. Ideas for this article came from Sheila Cevera’s presentation, Alternative Solutions for Long Term Care.