The Importance of Preparing for Long-Term Care

couple holding hands

While it may seem as though prolonged medical circumstances are unlikely to happen to us, unexpected events can occur and can be very costly if not adequately planned for. This is why it is important to consider the implications of not having long-term care (LTC) insurance and the best solutions for your financial picture.

What is Long-Term Care?
Long-term care (LTC) consists of various services that help meet the medical and non-medical needs of people with a chronic illness, injury, or severe cognitive disorder who cannot care for themselves for long periods. LTC usually involves providing help with Activities of Daily Living (ADLs), which may include bathing, eating, dressing, toileting, and more. These services help people live as independently and safely as possible when they can no longer perform everyday activities on their own.

Retirement Planning and Long-Term Care
Retirement and LTC planning are intertwined, as these are some of the largest expenses retirees face. A retirement plan that does not address these costs is incomplete. An insurance gap during a time of need can wipe out years of prudent investing, and LTC can protect you from catastrophic loss.

Long-Term Care Solutions
You have two options when it comes to LTC: you can either assume the risk yourself (self-insure) or transfer the risk to an insurance company. By “doing nothing,” what you are really doing is assuming the risk yourself, which may or may not be appropriate for your financial goals.

Self-Insured Long-Term Care
If you assume the risk yourself, you will end up doing one of the following should a long-term care need arise:
– Depleting assets: this could be a realistic strategy for you, especially if your retirement projections won’t hold up if faced with the expense of LTC.
– Depending on the government: Medicare and/or Medicaid will not adequately cover LTC expenses, mainly because of its eligibility requirements to qualify for assistance. In addition, you may be facing additional tax burdens and exorbitant costs if your recovery isn’t at a quick pace.
– Depending on family/friends: This could be a legitimate plan in some cases, but thorough discussion is required ahead of time to ensure that you have a consistent support system and that expectations are managed for every party involved to prevent extreme amounts of stress or guilt during the period in which LTC is needed.

There are also benefit options for Veterans to consider, as The Department of Veterans Affairs may offer some reimbursement for LTC services to veterans suffering from service-related disabilities or those who do not suffer from service-related disabilities but are unable to pay for coverage. However, applying for coverage is a long, unclear, and complicated process, and not all veterans receive the coverage they need.

Fully Insure Long-Term Care
If you choose to insure with an insurance company, there are three types of LTC options to consider:
– Traditional Long-Term Care Insurance: A contract that pays a daily benefit if 2 out of the 6 ADLs are met. The policy will provide a daily or monthly benefit for a stated number of years.
– Asset-Based Long-Term Care: A single premium life or annuity policy that provides a leveraged LTC benefit ranging from 2 to 7 years. The same 2 of 6 ADLs are required.
– Annuity-Based Long-Term Care: A no-lapse guaranteed universal or variable universal life with LTC rider. LTC benefit is typically 20% of the death benefit capped by HIPPA per diem. Same 2 of 6 ADLs are required.

Choosing the Right Solution for You
Ultimately, planning for LTC is about protecting you and those you love. Planning for unforeseen healthcare-related events may seem daunting, but we must remain aware of and plan for as much as possible. Each solution type has advantages and disadvantages, so it is essential to speak to your advisor about what works best for your financial goals. We would be happy to discuss how we can help you prepare for the unexpected.