Private Client Services Update – Long Term Care Insurance… Is it Here for the Long Haul?

    By Vonda W. Chappell, Estate, Trust & Wealth Transfer

    With increasing life expectancies and soaring medical and healthcare costs, even the most junior of those in the workforce and beyond are facing fears about how they and their family members will be able to pay the costs associated with the care they may require as seniors, while still preserving at least a portion of what they worked so hard for during their lifetimes for the benefit of their family members and favorite charities upon their passing. For most, there are only a handful of options available to provide for their care and the financing of such potentially daunting expenses, including self-insurance or funding, reliance on family members for care and/or the expenses associated with third-party skilled care, government programs such as Medicare or Medicaid or long-term care insurance.

    The traditional approach to providing for one’s medical care and the costs and expenses associated with the same is to self-insure by saving, investing wisely, and carefully budgeting to maximize pensions and other resources. While it is possible that accumulated resources may provide for an estimated median stay in a long term care facility, reportedly now at approximately 460 days, a chronic or catastrophic illness may deplete even the most cared for of nest-eggs. Private pay individuals struck with such an illness often find that their accumulated assets are depleted much quicker than expected, forcing them to liquidate assets upon less than favorable terms in order to create available funds to continue the level of required nursing care.

    For those who have family members, loved ones or other support networks in place, geographical distance, work schedules, strained economic situations and skilled nursing care needs may severely limit both the amount of time and financial resources they are able to contribute in providing for one’s care. What’s more, no one ever wants to become a burden to those individuals they value the most by asking for time and resources which are often both in short supply.

    While Medicare and Medicaid provide certain medical and healthcare benefits, generally Medicare does not cover most nursing home care, and individuals typically cannot qualify to receive Medicaid benefits until they cannot perform several of the tasks associated with daily living, have exhausted most of their assets and meet very modest income requirements. Additionally, these governmental options may not provide for in-home care and may result in a patient being placed in less-than-desirable facilities as the result of fewer available options for patients whose care is limited to the rates that such programs pay.

    Long-term care insurance seems to be one of the more viable options in covering or assisting with the costs of extended care and simultaneously providing some peace of mind that accumulated assets will be protected and preserved. Additionally, having such coverage in place may provide a patient or his or her family members with the flexibility to decide who will provide the necessary care and in what setting, while preserving assets and easing both the financial and caregiver burden on loved ones.

    With the choice being so seemingly clear, why doesn’t everyone have a policy for long-term care in place? First, such policies are expensive. Even if an individual obtains coverage at an early age, there is always the risk that decreasing income in his or her post-retirement years may result in such policy premiums being sacrificed. Unfortunately, when a policy is allowed to lapse, it likely results in the loss of all previously paid premiums and the entire investment explodes, taking the coverage with it. Additionally, with the cost of long-term care steadily increasingly, policy premiums are likely to follow suit, causing some to accept the risks of aging without such coverage. Some experts even note that insurers have already started to seek permission from state regulators to increase the premiums on existing policies in light of the high number of claims being submitted for payment. Second, long-term care insurance policies may have limitations and restrictions that are not readily recognized when purchased. For example, coverage may be limited or denied for certain conditions, facilities or treatments that are disclosed in the fine print and exclusions of a policy. Finally, some individuals find the risk of loss unacceptable should they faithfully pay their premiums, but never require such coverage.

    In an effort to make the long-term care insurance products more attractive and less risky, insurance companies have started to offer some features, options and riders to promote and develop consumer confidence. Some of these include:

    • Policies which allow benefits to be utilized in connection with the care of an insured at home, in an assisted living facility or a nursing home;
    • Policies which provide coverage for personal care and general housekeeping services, including meal preparation and cleaning;
    • Policies which provide for a return of at least a portion of a policy’s unused premium; and
    • Policies which provide for a minimum guaranteed benefit, with the owner of the policy having the opportunity to designate one or more beneficiaries to receive the any unused portion of the benefit after his or her death.

    In addition to these features, long-term care insurance, similar to the more traditional insurance products, can be purchased with varying elimination or waiting periods before eligibility for benefits will commence.  Coverage may be purchased in amounts based upon a daily, monthly and/or total benefit period, as well as for periods of time ranging from a few months to lifetime benefits. Inflation protection, which provides for increases in coverage amounts to offer some protection against rising healthcare and medical costs, may also be available.

    It is often too late to analyze how to pay for long-term care once the need for it arises.  Careful planning, saving and investing, and purchasing insurance products best suited to an individual’s health risks and financial station are the best tools for navigating through the maze of long-term care and its costs.  Long-term care insurance, while a financial investment, can certainly provide peace of mind and some degree of certainty for one’s care and asset preservation as our population’s life expectancy grows and medical and healthcare costs continue to escalate.  All responsible life and estate plans should provide for a course of action in funding expenses should long-term care be necessary at any stage of one’s life, rather than gambling with the consequences which may result should one fail to do so. – Vonda Chappell

    The contents of this publication are intended for general information only and should not be construed as legal advice or a legal opinion on specific facts and circumstances. Copyright 2024.