Not All Long-Term Care Insurance is Equal

February 1, 2018

What do you think of when you hear the words Long-Term Care insurance?

Most people feel as uncomfortable as a long tail cat in a rocking chair factory! I want to share with you how the industry has changed for the better, and how this product has become the center of attention in conversations concerning personal, farm, and business finances.

When I tell people about Long-Term Care insurance, I tell the story of my mother and the policy I sold her.  This is both good and bad.  In 1990, I sold my mother a Long-Term Care policy and for 12 years, everything went along with no issues. Then in the blink of an eye she was involved in a car accident and lost both her legs.

After an extensive stay in the hospital, we were required to find her a place for extended care. We were “fortunate” to be able to get her admitted into a nursing home right down the street from my home. I say “fortunate” because I believe the only reason we were able to do so was because we had a Long-Term Care policy, which would pay the nursing home directly.

My mother spent 14 months in the nursing home, which cost approximately $7,000 per month.  Between her social security and her Long-Term Care policy, we were able to cover most of the cost and she wasn’t required to pay out of pocket or much worse – rely on Medicaid.  

Once my mother got out of the nursing home, she needed some additional care at home. Luckily, we were able to use the policy to bring a nurse and caregivers into her home. At this time, she received a notice that her premiums were going up. As her agent, she asked me what she should do. I told her even with a 40% rate increase she would never pay in the amount that was paid out in benefits, so I told her to pay the premium.  

Eventually she was able to live on her own again, but eight months later, she earned another trip to the nursing home when she fell and broke her hip. She didn’t need as much care as before, so the cost was around $6,000 per month for the four months she stayed there.

After those four months, my mother was moved into an assisted living facility, where they had a nurse on call 24/7. There was also a caregiver to help her bathe and put on her prostatic legs. She was able to live in this facility while maintaining her dignity and independence – all because we had a policy that paid the $2,400 monthly bill over the next 2 ½ years of her life.

Three Reasons People Don’t Have a Long-Term Care Policy

Clients tell me all the time they will never be put into a similar situation, or they have enough money to cover the expenses out of pocket. While we all want this to be true, I know from personal experience that it can happen, and the experience is as stressful for the person receiving the care as it is for those sitting at their beside in the nursing home. The stress only compounds if our loved one doesn’t have a Long-Term Care policy in place, because it adds the burden of trying to figure out what assets to liquidate to pay for their care.

When I ask people why they don’t have a Long-Term Care policy, I usually get one of three answers:

  • “I don’t need it.”
  • “If I don’t use it, I’ll just be wasting money.”
  • “If the rates rise, I won’t be able to afford it.”

These concerns are valid, and in the traditional health based products of the past, very real.  Today we have products that address those concerns, and now all Long-Term Care (LTC) policies are not created equal.

“I Don’t Need It.”

This concern is usually explained in one of two ways. Either, “I have no assets, so I don’t need coverage” or “I don’t think I need this insurance to protect my money and assets.” I think most people live in denial that they will ever need some sort of long term care. After all, my mother never imagined she would be in a car accident and need three years of care, but she did.

There are three different levels of long term care. The one most people think of is nursing homes. With a Long-Term Care policy, people can protect themselves from a facility charging $200-$400 per day for care. Next is Assisted Living, which is basically an apartment building type of facility that has multiple levels of care, depending on the wants and needs of the client. Lastly, there is Home Health Care, where someone comes into the home to provide care in a variety of ways.

“If I Don’t Use It, I’ll Just Be Wasting Money.”

This is one of the biggest objections I find when asking clients why they don’t have a Long-Term Care policy. To be honest, I would agree that it is like fire insurance on your house –  if you don’t have a fire then the money is wasted.  Some of the older style products on the market and those sold today have a use it or lose it approach.  

What if we could return your money in the form of a death benefit once you die, or return your premium if you want to cancel the policy? And what if you have a medical condition that requires either a nursing home, assisted living, or home health care, and it pays a benefit to cover all or a portion of those cost?

“If the Rates Rise, I Won’t Be Able to Afford It.”

Here is where we can make a strong point about not all Long-Term Care coverage is equal.  Products that we sold 30 years ago were the traditional LTC policies that had zero guarantees about premium increases, and since they had zero guarantees about premium increases they increased the rates on these policies.  Now we have what is called asset based or combination products that will address the use it or lose it approach to LTC insurance, but there are very few that can guarantee that the rates will never go up on policy. But now we have specifically designed a policy that is guaranteed to never have a premium increase.

It Is Better to Be Prepared

If there is one thing you take away from my mother’s story, let it be that the need for a properly structured LTC policy is invaluable. I cannot tell you the amount of guilt and stress you will be under when you have your own personal experience. You will constantly question whether you are at their bedside enough and if you are making the right financial decisions for those that are receiving care.

If you are a child of a parent that is getting older, especially if you are the one that lives the closest or will be providing care, look at purchasing a policy on your parents as this will reduce the stress on you.  If you are over 50 consider a policy as part of your planning process.  If not for your benefit than for the benefit of those that will be taking care of you and your finances.

It’s true that not all policies are created the same. Some will make you pay for your lifetime and if you don’t use them you will lose all that you have put into them. Most policies don’t have a guarantee to never increase premiums. Most policies don’t pay for a lifetime of benefits. But you can make a LTC policy work for you. I purchased one on my wife and me that address all of these concerns. The policy I own is what I like to call my anti nursing home policy because I plan on staying home as long as possible thanks to the right policy.

If you’d like to learn more about incorporating a Long-Term Care insurance policy into your financial plans.

Get in touch with Wade Borth at (701) 793-3471 or by email at wade@sagewealthstrategy.com to get started.