If you’ve watched a parent decline or helped care for them, then you already know the emotional, and financial, toll that can take. Long Term Care Insurance can help protect your money and your family from the tolls of care later in life.
Transcript
If you’ve experienced your parents or loved ones decline and require care later in life, this topic may already feel personal. You already know how heavy this stage of life can be both emotionally and financially.
Now, you may be thinking, what happens if I’m the one who needs care someday? Today, we’re talking about something that may hit close to home.
In this video, we’re going to cover the basics of long-term care insurance, how it can protect your wealth, your family, and your legacy, and whether this type of insurance might make sense for your specific situation.
As always, this isn’t personal advice, and you should always speak with a licensed, reputable professional about your situation. My goal is simply to give you a foundation for making confident decisions.
I’m Rachael Bourke, a financial advisor with Hello Inheritance, where we help women and couples navigate the financial and emotional sides of inheriting wealth.
When someone inherits money, one of the first questions they often ask is: How do I protect this so it lasts not just for me, but also for my kids? And that is a legitimate question. One of the biggest threats to someone’s wealth, including inherited wealth, is the cost of long-term care.
Does Medicare Have Long-Term Care Benefits?
Now, it’s important to make a distinction upfront because this is commonly misunderstood. Long-term care is not health care. As such, it isn’t covered by Medicare.
Medicaid does have some long-term care benefits, but one’s assets must be almost completely diminished in order to be eligible.
When Does Long Term Care Insurance Kick In?
Long-term care is the help you might need if you can’t perform certain daily tasks on your own, things like bathing, dressing, and eating. This type of care can happen in your home, in an assisted living facility, or in a nursing facility.
And here’s the reality: It’s expensive.
According to the Federal Long-Term Care Insurance Program, the national average cost for a semi-private room in a nursing home is $112,420 per year. And if inflation continues to average 2.54%, in 20 years, the annual cost of care in a nursing home could increase to almost $186,000.
It’s one of the fastest ways that estates get drained.
And for inheritors, many of whom watched their parents go through this, they want to do what they can to prevent that cycle from repeating itself.
We often hear things like, “I don’t want to put my kids through what I went through.” This is where long-term care insurance can come in.
It’s a tool designed to protect your estate, including your inheritance, from being wiped out by care costs.
Protecting Your Independence Later in Life
Additionally, long-term care isn’t just about money. It’s about independence, being able to stay at home longer, and minimizing strain on family members. Beyond the finances, those are the factors that often drive many inheritors to seriously consider it.
Breaking down “Activities of Daily Living”
Now let’s talk about what long-term care insurance actually is and what it isn’t. Most policies kick in when a doctor certifies that the insured can’t perform two or more activities of daily living or ADLs, which can include:
- Bathing
- Grooming and personal hygiene
- Getting dressed
- Eating
- Toileting
- Mobility
Care can be provided at home, which many people prefer, or in an assisted living facility.
Traditional vs. Hybrid Long-Term Care Insurance Policies
Traditional Long-Term Care Insurance
There are two main types of long-term care policies that it’s important to be familiar with. The first is traditional long-term care insurance.
With traditional policies, the owner pays an annual premium and if they ever need care, the policy pays benefits. However, if the benefits never get used, there is no cash value or way to get money back from the policy, similar to homeowners insurance. It’s on a use it or lose it basis.
Other important things to understand about traditional policies include thorough underwriting.
Traditional long-term care insurance typically requires medical exams, blood draws, etc. when an application is submitted.
Also, elimination periods. With most policies, the insured is obligated to pay for the first 30, 60, or even 90 days of care before benefits kick in. This is similar to a deductible in medical insurance. Finally, increasing premiums.
With most traditional policies, there is no guarantee against increases in premiums over time.
Hybrid Long-Term Care Insurance
Now the other main type is hybrid long-term care insurance. These combine long-term care and life insurance, and these types of policies are becoming more popular for several reasons.
First, is because they provide both long-term care coverage and a death benefit. This differs from the traditional use it or lose it policies. To put it simply, if you need care, you draw from the benefit. If you don’t, the death benefit goes to your heirs.
The second is cash value. If you decide to surrender or cancel the policy, you can typically get somewhere between 70% to 100% of your premium back.
Third, the premiums are fixed and are guaranteed not to increase.
Fourth, inflation protection. Many policies come with inflation protection, meaning benefits increase over time as the cost of care inevitably rises.
Other important elements of hybrid long-term care policies are simple underwriting. When applying for a hybrid policy, you often only need to undergo an interview about your medical history over a phone call and typically don’t need to undergo a physical exam.
And finally, no elimination period means that you won’t have to pay out of pocket for the first 30, 60, or 90 days that you need care. Benefits kick in right away under most hybrid policies.
These are far more common these days and personally I can understand why.
Age Matters!
So moving on, it’s important to note that while you don’t want to rush big decisions like this, time and age are important factors when purchasing long-term care. You will almost certainly receive more favorable terms if you buy your insurance policy when you’re younger.
Take Linda and Yvette, for example. Both inherited $1 million at the age of 50, and both were relatively healthy.
Linda purchased long-term care coverage within a couple of years of inheriting, while Yvette felt that, while it may be beneficial for her as well, she told herself she’d get to it “When things calmed down” and before she knew it, life happened and 10 years slipped by before she finally applied.
Even though they both invested $100,000 into their policies, Linda’s benefits are about 30% higher than Yvette’s.
Why? Because she acted earlier when coverage is simply more affordable. For Yvette, waiting costed her a meaningful portion of future benefits.
Does Long Term Care Insurance Make Sense for You?
Now let’s talk about some of the specific characteristics that matter when determining whether long-term care insurance makes sense for you.
Long-term care needs vary widely from person to person. No one can predict with certainty what your situation will look like, which is part of what makes this decision a challenge. There are, however, some factors that may increase the likelihood of needing care later on.
For example, according to the American Association for Long-Term Care Insurance, women are statistically more likely than men to require long-term care services at some point in their lives.
Family history can also play a role. If longevity runs in your family, that’s a gift, but living longer also increases the likelihood of needing some level of assistance with daily living at some point.
Beyond genetics, other considerations may include your current health.
It’s common for people to delay looking into long-term care insurance until they feel closer to needing it. However, coverage is often based on age and health at the time of application, which can influence eligibility, pricing, and available benefits.
Furthermore, you need to consider your financial flexibility. If you’ve recently received an inheritance, you may be in a uniquely strong position to be able to afford a long-term care insurance policy.
Another consideration is family.
If you have a spouse or children who could and would step into a caregiving role, you may be less likely to need professional long-term care in the future.
The Gist
Not everyone will need long-term care and not everyone needs long-term care insurance. Like many types of insurance, it’s something you hope you never need, but if you do, you’re sure glad you have it.
It’s crucial to have a thoughtful conversation with a licensed, reputable professional who can evaluate your specific circumstances and help you determine if this is the right fit.
Long-term care insurance may not be an easy topic, but it’s an important one, especially for those of us who want to ensure that our wealth and our families aren’t burdened later on.
If you want help thinking through whether long-term care insurance makes sense for you, you can schedule a call with us anytime at HelloInheritance.com.
Thank you for watching and see you next week!
Disclosures
This content is for educational purposes only and is not specific investment advice. Advisory services for Hello Inheritance are offered through Bourke Wealth Management. Please visit www.bourkewealth.com for important investor information.
Bourke Wealth Management is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Bourke Wealth Management and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Bourke Wealth Management unless a client service agreement is in place.
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