2023 EP0401 | Financial Updates | Long Term Care Insurance: 3 Things to Consider Before Buying a Policy

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Peter, good to see you. Today we are talking about long-term care insurance, three things everybody should consider before buying a policy. I was really surprised to learn that more than 70% of adults who live to age 65 will need long-term care. Not only is it very expensive, but also it's not covered by Medicare or other health insurance plans for the most part.

So let's just start at the top. Who even needs long-term care insurance? Well, really everyone should have it. And I think that there are some different financial statuses that people could fall into.

Basically needing to protect income, trying to protect assets, or trying to protect estate value. And those are kind of different tiers of where you are at financially. But basically everyone could benefit. And that 70%, that's according to the 2020 Department of Health and Human Services statistics. And it is as close to 7 in 10 of us as you can get. 69.8% will need some form of long-term care.

So 7 in 10, and that is a large percentage. So really everyone needs to have a plan and document their plan for how to address the potential costs of care. Because, as you stated, not covered by Medicare or traditional options.

Right. So let's walk through now the considerations before you buy a policy. The first is what is the right age that we should be buying that insurance? Yeah, well really young age and good health are your best asset to get affordable coverage. But you've got to sort of compare that with the potential cost of a duration of time where statistically you are not likely to need coverage.

So there is no exact answer to this, but generally somewhere between 55 and about 65 is kind of your sweet spot where you've got both. You're not going to be paying on it forever and ever with a very, very, very low likelihood of needing it. Although it's not just, you know, seniors that that do need long-term care.

Unfortunately, it's unfortunate for everyone, but it does happen sometimes at a younger age as well. And between that kind of range, 55 and 65, generally you are still healthy and young enough and haven't had any major health issues that would be preventative from getting underwritten. Which by the way, traditional long-term care insurance, it's very difficult to get that underwriting. They will look at, you know, a shoulder or a knee or a hip replacement these days and say, well, that gives us a pretty strong likelihood that difficulties are going to be encountered later. And it may be something where you can't get approved. Interesting.

OK, such a personal decision then as well. It really is. Let's talk about coverage.

We pulled up North Carolina here, obviously, Peter. As we talk about the cost of care by state, it is incredibly expensive. As you can see here, four thousand up to eight thousand. I'm sorry, eleven thousand dollars a month. So how do we even figure out what can what kind of coverage to buy? Well, I think this is very individual as well.

You've got to look. Are you single? Are you married? You got family that you are trying to make sure that you are protecting against the potential cost of your own care between a married couple. If the second person requires care, it may not be as devastating to the financial situation as if the first has these kind of costs, because these are in addition to the regular routine costs of the healthy spouse that is perhaps providing some of that care.

And, you know, the attitude is, well, I'm Superman, I'm invincible or I won't need that. But the the truth is seven and 10 do need it and it costs a significant amount of money. So looking at those numbers, Aaron, let's say that, you know, we wanted to try to figure out how much coverage do we need if we take that high end of the spectrum, say, eleven, let's call it twelve thousand because medical expenses are subject to higher inflation than almost anything else.

Let's call it twelve thousand. And let's say that the average duration for care is about three years. Well, that's one hundred and forty four thousand dollars a year times the three years, somewhere between 450 to maybe five hundred thousand dollars could potentially be spent on care for for what is a rather common occurrence and length and duration.

Those are sort of the the averages. But we want to protect with insurance. Well, there are alternatives to the traditional long term care and we can go about providing that protection. And in a few different ways, number one, self-insured, you've got your own bucket of money.

Say, hey, I've got five hundred thousand dollars that is completely discretionary that I don't intend to ever need for income that I am not really including as part of my estate. It's if it's there. Fantastic. That's a bonus. But it's it's not going to affect my legacy plans. If not, you set that aside. You could reasonably say I'm self-insured. However, when I want to ensure my home.

Right. And by the way, all insurance, I hope never to have to use it. That's the nature of insurance.

We hope never to have to use it. But if I want to ensure my home, I don't stick five hundred thousand dollars over in a bank account and say, well, now I'm self-insured. I buy the insurance to provide leverage and protection for the asset. And in this case, the assets that are that are providing us the confidence to even say that we have a roof over our head or that we are self-insured. And so even if you have those assets available for a small fraction, generally of the growth on the money that's giving you the confidence to make the statements like for a portion of the interest that money would earn in a year, you can provide insurance that helps to protect the assets that are giving you that confidence.

That was a long way around. But you're in a confident position. Let's keep it that way if that is you. And then if we are in a place where, you know, incurring these expenses would affect our legacy or our income or the lifestyle of a spouse, we need to take more careful consideration to make sure that we plan and address this. And at the very least, you need to document your plan. How will we be approaching this if we incur it?

So, Peter, I think you just answered this. I just want to make sure that I'm asking it explicitly as far as other options people should consider. Is there anything else that we need to keep in mind? Well, the insurance industry, by and large, again, has moved away from the traditional long term care insurance because they underestimated the cost of care, the duration that that care would be needed and the number of people who would need it. And so it wasn't a profitable product for them, which really indicates that it's that much more of an important issue for us to address.

So how do we do that? Well, the insurance industry and individuals have sort of moved in the same direction in finding something that is more appealing to both sides, which is a finite amount of liability for the insurance companies and a known specific price for individuals that is not use it or lose it. And that is through permanent life insurance. And what we do is we know the price of the permanent life insurance. We know how much will be there for that life insurance if we pass away. But we can also use that death benefit to advance to ourselves to cover the cost of care should we encounter them. And so we run through the math and ballpark how much we may need for the purpose of covering the cost of care. And that is really a consideration for how much life insurance that we should have and carry through retirement, because I know I'm going to be much more confident spending my money with my wife during retirement, enjoying our life. If I know that I've given her some ability to either cover the cost of care or refill the bucket of assets, should I encounter those costs? And and that's really a very specific individual discussion about what we what we can afford and what we need.

But people like the fact that that approach is not use it or lose it, that they know that one way or another there is some benefit there. And Amber does deserve the best. Absolutely. Yes, she does.

She does. All right, Peter, if somebody has questions about determining what kind of coverage is right for them, what's the best way to reach you? You can reach out. Give us a call.

Nine one nine three zero zero five eight eight six nine one nine three zero zero five eight eight six. Email me, Peter, at Rishan planning dot com or visit online. Rich on planning dot com is what it looks like.

Rishan. Peter, thank you. Always a pleasure.

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