Long Term Care Discussions: Painful yet Necessary
We might as well hold these meetings in a dentist’s chair, without the anesthesia. It’s just the worst. At least when you visit the dentist, you leave with that squeaky-clean feeling and a few samples of floss (that you may or may not use).
When we have a sit-down discussion about paying for long term care – nursing care – you leave feeling less satisfied than when we began. For that, I’m sorry. Unfortunately, for you and me, we need the dentist, and we need to be frank about the realities of long term care planning.
So why does long term care planning feel so underwhelming? For starters, nobody wants to actually use the services we’re trying to pay for. If you’re like me, you’d prefer to pass away peacefully in your sleep, just after enjoying a double cheeseburger and a hot fudge brownie sundae. Instead, we consider that the average nursing home resident stays for around 2-1/2 years, depending on the study you read. That’s generally following a progressive level of care that begins in the home. Costs vary, of course, but range from about $20,000 per year for in-home assistance, up to over $100,000 per year for a semi or private room in a nursing home.
The challenge, therefore, is acting in your best interest while knowing that there’s no right answer. In other words, neither you nor I will get this one completely correct; we’ll either plan too much or too little for long term care costs. The key, however, is to commit to some sort of plan, even if the plan is to roll the dice and self-insure.
That said, there are now several ways to address long term care risks without betting the farm on a single possible outcome. After all, one of the fears that many share is that you’ll commit a lot of money to insurance premiums, only to find out later that you never needed a nursing solution. All that money is lost?! Not always, not anymore.
Enter the hybrid solution. While traditional long term care insurance policies, the type that you pay for every year and that only pay out if you qualify for long term care, are excellent options for many people, there are now policies that avoid the ‘use it or lose it’ fear.
Life Insurance / Long Term Care
A hybrid option pairs life insurance with long term care insurance. This allows the insured person or people to effectively spend a life insurance death benefit while still alive, to pay for long term care services. The other benefit then, is a death benefit payable to the insured’s family if they pass away without needing long term care. As a result, the money paid into the policy returns back to you or your estate, without having lost it because you never needed nursing care. Also, these policies typically allow you to get at least your original deposit back if you decide later that you have another use for the money.
This type of policy can work especially well when there’s a lump sum of money available to fund it. Rather than keeping the money in a low-yielding CD or savings account, for example, the money can be transferred to a policy with long term care and life insurance benefits, multiple birds with one stone.
Annuity / Long Term Care
Annuities are the financial product of choice for retirees seeking high levels of reliable and guaranteed income to last until the end of life. What’s more, a number of modern annuities now offer long term care benefits on top of the income benefits. For example, one type of annuity available pays guaranteed income for life, and in the event that long term care is needed, it will double the amount of income paid-out, for up to five years, to help pay for costs associated with long term care needs. Once the person has passed away or the nursing need has passed, the guaranteed income returns to the amount originally received prior to the doubling period. Again, this avoids the use it or lose it nature of traditional long term care insurance.
As you can see, the nature of the long term care conversation has evolved, in large part because the financial products available to retirees has evolved. Now, you can hedge against potentially devastating long term care expenses, while remaining liquid and knowing that the sacrifice of paying premiums won’t be for naught.
Self Insure
For some, the choice to self-insure against a long term care need may be perfectly appropriate. Either there aren’t enough assets available to justify the cost of an insurance option, thus leading to spending assets down until Medicaid pays the rest, or there are sufficient assets available to fund a care need out of pocket. It really depends on the fact pattern and what a retiree is hoping to accomplish.
While nursing home discussions still may be uncomfortable, the solutions to the potential problem are much more varied and flexible than ever before. As a result, I hope you’ll consider having a conversation about your planning now rather than wait for your options to be reduced due to declining health.
Give us a call if you’d like to explore the conversation further. I’ll promise to leave the drills and floss at the dentist’s office. I don’t like those things any more than you do.
