November is Long Term Care Awareness Month, but we shouldn’t limit such an important topic to just one month. As I mentioned in my post on risk management, no one likes to discuss these topics, but they are critically important to a financially secure and dignified future.
First, let’s define what long term care (LTC) means. When most people think about it, they think of a nursing home. While LTC includes nursing homes, it also includes home care, adult day care, and assisted living facilities. These services all assist activities of daily living (ADL), which includes bathing, personal hygiene, dressing, toileting, functional mobility, and feeding.
The unfortunate reality is that most of us will need help with these services at some point in our lives. Some statistics estimate that 70 percent of people will need help, while others estimate between 40 and 50 percent. Either way, it’s a highly likely event.
Every area of the country is different, but for some context, here are some recent stats from a Genworth study on the monthly cost of care in the Philadelphia area:
- Adult day care: $1,842
- Home health care: $4,671 – $4,957
- Assisted living facility: $6,750
- Nursing home care: $10,615 – $11,756
As you can see, the costs can add up quickly if you or a loved one has an extended stay. Failing to plan for these costs can devastate a family’s finances.
There are two ways to tackle LTC costs:
- You can retain the risk by using personal assets to fund these costs when they occur.
- You can transfer the risk to a third-party by purchasing insurance.
There is a common misconception that Medicare or standard health insurance covers these custodial care items. Except for a limited stay associated with a medical issue, Medicare and standard health insurance do not cover these costs. And, while state-run Medicaid does cover them, you would need to exhaust the majority of your assets to qualify. Certainly not a desired result.
LTC is an area where insurance makes the most sense. It is a high probability event, with an unknown and potentially high cost.
When thinking about long term care, two things are important: to have a plan and to share it with your loved ones. While I can continue to cite the statistics on probabilities, cost of care, and cost effectiveness of insuring against this risk, the main reason to have a plan is very personal.
The plan for care and the means to pay for it is not for you, it is for your family. And what most people don’t realize, is that the majority of care in this country actually takes place in the family home. This was certainly the case with my family, as my father took care of mother for years before her passing. He simply felt it was his responsibility to take care of her. Many spouses or other family members, often an adult child, feel this way.
If there was a plan in place, the burden could have been shifted to home health aides. Simply put, no one minds spending the insurance company’s money. But more than that, as I said above, it is not about the money. It is about giving your family permission to get help and letting them know it is okay for them to do so. A colleague of mine, whose parents had great long-term care insurance, once said to me that it was the best gift they could have ever given her.
For followers of my posts, this information doesn’t include specific product recommendations. There are many products and options within those products that range from standalone long-term care policies to hybrid policies with long-term care benefits using life insurance or annuities. Which type of policy is appropriate for you depends upon your overall financial plan.
Please consult not only an insurance specialist, but also your financial planner to ensure coordination.