Do Retirees Need Long-term Care Insurance?

retired personMy Comments: As a financial planner with thinning grey hair, my clients tend to be already retired or soon to be retired. A major worry we all face is the chance that we will slow down to the point where we need help to get from one day to the next.

Sure, family members will help, but this puts a heavy burden on them since medical science has a way of keeping us alive much longer than was the case 100 years ago. Then, the idea of being taken care of by our children was different since there was little chance of us living into our 90’s and more than likely they lived next door.

The following facts are sobering.

Rodney Brooks, USA TODAY September 10, 2014

Health care costs are a big concern for people going into retirement, but the costs of long-term care can still be a shock.

Here are a few facts:
• 70% of people over 65 will need some form of long-term care at some point.
• For married couples, the chance that one spouse will need long-term care rises to 91%, says Byron Udell, CEO and founder of AccuQuote.com.
• People living alone are more likely to need some sort of home health care.
• Women outlive men, and thus, are more likely to live alone and need some sort of home health care.

So, while some financial planners previously were on the fence about long-term care insurance, they were still encouraging people to at least have a plan for long-term care.

“For Baby Boomers, long-term care insurance is a must,” says Manhattan attorney Ann-Margaret Carrozza. “We can no longer rely upon Medicaid to cover custodial type care. We see over the course of the past few years that eligibility for Medicaid has gotten tougher. In 2006 the so-called look-back period was extended from three years to five years,” she says. During that period, the government can check, or look back, to see if you have sheltered or given away assets — and if you have, it triggers a penalty period when you’re ineligible for government aid.

“There are now proposals in Congress to increase it to 10 years,” Carrozza says. And, she warns, Medicare only covers up to 100 days of rehabilitation following hospitalization. “Beyond that — nothing!”

The Employee Benefit Research Institute says the average retirement shortfall for Baby Boomers and Gen Xers is nearly $50,000. But that rises dramatically when expenses for home health care or nursing homes are added: for married households by $25,317; single males, an average increase of $32,433; and by $46,425 for single females.

No wonder so many people are worried that they won’t have enough money to even cover health care costs in retirement, let alone make it through retirement in the lifestyle they are accustomed to.

Let’s start with the basics. Long-term care is the service, both medical and non-medical, for people with a prolonged physical illness, chronic disease or disability. That care can be administered in-home, or in an institution like a nursing home or an assisted living facility.

“Custodial care will cost an average of $200 to $300 a day,” says Udell. “In-home care is somewhat less. In smaller (cities) it’s less. Most long-term claims are actually for in-home care.”

He said the cost depends on a lot of variables, whether the care is 24 hours a day, whether a caregiver comes and goes. He said a relative has a live-in caregiver who is paid $1,200 a week, plus meals.

Meanwhile, Genworth Life Insurance Co., a leading provider of long-term-care insurance, says the average length of a long-term care insurance claim is 2.9 years for a nursing facility and three to four years for all claims, including in-home care, based on reimbursement claims data from December 1974 through December 2013.

“I think the overarching theme for us is that you have to deal with that issue (long-term care), whether you have the money to self-fund or whether you buy long-term insurance,” says David Richmond, president of Richmond Brothers, a financial and retirement planning firm in Jackson, Mich.

“It’s a really big number,” Richmond says. “Retirees are getting an idea because they are dealing with their parents. That care is not cheap and insurance will not pay for it. Once you have exhausted your 100 days, Medicare will not pay. You must plan what you will do and what it will do to your portfolio and your family.”

That said, the question is: Is long-term care insurance the answer?

Financial advisers used to be mixed on the option. But they seem to be increasingly supportive of including the insurance as part of their financial plans.

“Long-term care stays on average two and a half years,” says Joe Heider, managing principal of the Ohio region for Rehmann Financial. “That can quickly eat into estates.”

Still, he says, long-term-care insurance is not for everyone. “Some people can’t afford it. They have to take risk they will not use it or that their assets will be spent down and they will be able to use a government-assistance program.”

John Sweeney, vice president at Fidelity Investments, says provisions for health care are essential in retirement plans Fidelity creates with its clients. “Long-term care is a very personal decision,” he says. “Many people we speak to who are going into retirement expect they will cover long-term care on their own.”

Sweeney says in a recent survey of children of retirees, 45% of the children expect to take care of their parents. “If you don’t have children, a long-term care plan might make sense,” he says.

“Long-term care provides the elderly with the opportunity to stay in their home, which is where they want to be,” says George Hunter III of Hunter Capital in Columbia, Md. “Long-term-care insurance allows for that. It gives them flexibility and gives them choices. It lets them keep their lifestyle the way they want it.”
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“The biggest risk is if you are married,” says Richmond. “If one of you gets sick, it can be catastrophic to the family financially.” Say you need $4,000 a month to live on and you have a family member with early-onset dementia. It costs $5,000 a month for care. “All of a sudden, what you take out of your retirement savings just doubled. There are not many plans that you can double what you take out for three or four years and still be viable,” he says.

“Talk to your lawyer, accountant, financial adviser and say if the unthinkable happens to us, what will happen, and what will we do?” Richmond says. “You are talking about what could be hundreds of thousands of dollars.”

NEW OPTIONS
Several things were working against the broad appeal of long-term-care insurance over the years. One is the expense. Also, the industry saw some dramatic rate increases in the past several years. And several providers got out of the business entirely.

But the issue for many potential customers was that you could pay the premium for years, and never need it.

“Historically, the big turn-off with long-term-care insurance was that all premiums paid were lost in the event policy benefits were not used,” says Carrozza. “Now, we are seeing more flexible products built around a life insurance model.”

Steve Cain, principal and national sales leader of NFP Long Term Care in Los Angeles says the average annual premium for a traditional long term care policy is $2,332. But a growing trend is the single premium life insurance policy with a long-term-care rider.

That’s exactly what Udell says he and his wife have — on life insurance policies of $1 million. “If I don’t ever need it, my family gets the million,” he says.

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2 thoughts on “Do Retirees Need Long-term Care Insurance?

  1. Jessie Parker

    Another thing to think about is the burden one will suffer if they are not ensured by any types of insurance. Yes, long term care can be expensive, and there are also possibilities that one might not use it that is why weighing the risks involved of being insured vs. not insured is important. There lots of insurance companies that offer different types of policies, the retiree might find one that would fit for his needs.

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