Navigating Long-Term Care Insurance for Your Parent
Most people will never forget when they first noticed their parents’ declining health. Many find it difficult to accept the reality of their parents aging, but it’s critical to know for certain what, if any, preparations are in place for their needs. The most crucial question to ask your aging parents at that moment is, “Do you own a long-term care insurance policy?”
For many people, it takes a health crisis to realize there’s a need for long-term care. However, all senior citizens are at a higher risk for developing chronic and debilitating health issues, requiring long-term care assistance.
How Much Does Long-Term Care Cost?
The purpose of long-term care is to assist with the activities of daily living (ADLs), including bathing, dressing, toileting, meal prep, housekeeping, shopping, and medication reminders. It’s estimated that 70 percent of people over age 65 will require long-term care at some point in their lifetime.
Unfortunately, long-term care costs are increasing at a rate faster than inflation. According to the Genworth 2022 Cost of Care Survey, the annual cost of a private nursing home room is about $102,000, a 25 percent increase from 2011. At $60,000, the yearly cost of home care is up nearly 40 percent. As the population continues to age and demand for long-term care services increases, the costs are expected to increase even faster.
How Does This Impact the Family?
Of course, family members suffering from illness are impacted physically, emotionally, and financially. Running out of money due to a long-term illness is the last complication anyone facing a health battle needs.
Unfortunately, it’s often the children of those needing long-term care that are most hurt by these costs and their associated impact on inter-generational family finances. Adult children may be raising their own children at the same time a parent begins needing nursing care. This is known as the “sandwich generation” phenomenon, and many baby boomers are currently finding themselves in this situation as their children head off to college and their aging parents face the prospect of potential long-term illness or disability.
How Should Your Parents Pay for Long-Term Care?
Your parent may have already addressed the issue by purchasing g a long-term care insurance (LTCI) policy. LTCI is a great vehicle for protecting assets and funding long-term care.
The other options for covering the cost of long-term care are using one’s assets or spending down those assets to under $3,000 to qualify for Medicaid. The people who can suffer the most financial devastation are the middle to upper-middle-income seniors who have too many assets to qualify for Medicaid and just enough assets to get them through a secure retirement. For these people, it makes the most sense to transfer the risk of long-term care to an insurer.
Long-Term Care Insurance May Be Most Affordable Solution for Many
While other options do exist for paying long-term care expenses, such as reverse mortgages, asset depletion, and some health plans with limited coverage, in the long run, long-term care insurance can prove to be the most affordable and effective way to cover the costs.
The critical aspect of considering LTCI is that it needs to be done before it’s needed. Waiting too long means paying higher premiums beyond what may be affordable or not qualifying for coverage due to the onset of a health condition.
It’s best to make decisions about paying for long-term care before it’s needed, ideally between the ages of 50 and 65. While some adult children feel they may be too young to initiate conversations about their parent’s financial matters, having them when the parents are in good health is imperative.
What to Look for in a Long-Term Care Insurance Policy
There are three types of coverage: Indemnity, which pays a set daily amount; reimbursement, which pays the lower of the actual expenses incurred or the covered amount; and full coverage, which pays the covered amount entirely regardless of the actual expenses. The premium costs are lowest for indemnity coverage and higher for full coverage. In most cases, the coverage is for nursing home care; however, a home care option can be selected, usually at a slightly lower cost.
As with other types of health insurance plans, long-term care insurance includes a deductible in the form of a waiting period. The longer the timeframe from the onset of care to the payment of benefits (typically from 0 to 120 days), the less the premium payment will be. It would also be essential to consider an inflation protection option, as some policies exist for as many as 20 years before they are needed.
Long-term care insurance may make sense for most people who want or need to protect their assets for their own use or as a legacy for their heirs. As with any type of insurance, long-term care coverage varies from provider to provider, so care should be given to shop and compare. It is always a good idea to seek the guidance of a trusted and qualified long-term care insurance specialist who will work on your behalf to find the right kind of coverage.
Work with A Financial Advisor Who Can Help
At Massie Financial Planning, we are here to help. Whether you’re looking to the future and want to plan ahead, or something has happened that needs to be addressed, the help you need is just a phone call away. Simply schedule your complimentary Discovery Call here and we’ll discuss the assistance you need.