Who Should Not Buy Long Term Care Insurance

June 15, 2010

People with low income and net worth should not buy long term care insurance.  They have other, more immediate, priorities (food, shelter, etc.) and will likely soon qualify for Medicaid.  While the long term care services provided by Medicaid are not nearly of the high quality (fewer choices and fewer available resources) as private pay, Medicaid does provide a safety net.

What minimums do I use to financially qualify someone for long term care insurance?  As a general rule, a couple should have a combined annual income of at least$50,000 and a net worth of at least $150,000 before considering long term care insurance.  For a single person, the minimums are about$40,000 annual income and $50,000 net worth.

An exception would be a situation in which adult children can afford and are willing to pay the insurance premiums.  that can be a good way for adult children to remove the financial risk to themselves of ultimately paying for their parents long term care services.  One way or another, the children always pay the cost of their parents’ care…either as a result of a reduced inheritance because the parents did not have long term care insurance, or a reduced inheritance because of insurance premiums paid by someone.

In short, someone without much income or assets should not consider long term care insurance.

© Raymond Smith, The Long Term Care Specialist, 2010.

High Net Worth and Long Term Care Insurance

June 11, 2010

Should a person with $2.0 million net worth consider long term care insurance?  What about $10M?  $50M?  Bill and Melinda Gates?  I am often asked how much net worth a person needs to be able to self-insure against the risk of needing long term care services.  With at least $1.5M in assets, an individual ($3.0M for a couple) probably could self-insure.  There is no question that someone with $10 million of net worth could self-insure, but does it make good business sense to do so?

Successful people don’t acquire a high net worth by carrying significant risks on their own shoulders.  They have liability insurance.  They hedge business deals against bad outcomes.  They engage attorneys, CPAs, insurance agents and financial planners to provide good advice.  All of this to minimize risk.

Estate Planning: Why do high net worth people go through the time and expense of estate planning?  They don’t do it to reduce estate taxes (especially for calendar year 2010).  Taxes are merely a single piece of the puzzle.  The primary reason people do estate planning is to maximize what gets passed to who they want to receive their assets.  Yes, estate planning is done to keep financial affairs private and also to ensure that specific assets go to particular people, but mostly to maximize the amount of wealth that is transferred.

Family Relationships: Even with wealth, there is often the at least perceived obligation to provide hands-on care for parents.  This burde45ish mom and her 2 daughtersn usually falls disproportionately upon the adult daughter or daughter-in-law.  Providing hands-on care has a negative impact on careers, educational pursuits and personal relationships (more about this in a future posting).  Long term care insurance provides cash that can only be used for one thing…payment for professional long term care services*.  This changes the dynamic from daughter providing hands-on care to daughter (or other family member) being the manager of care.  “Manager of care” is far less a burden and thus results in far less intra-family stress.

Finally: If Bill and Melinda Gates were to respond to this article, I would advise them to at least consider long term care insurance.  Why?  So they could maximize the amount that will be left to their many good works.

*Cash benefit  or indemnity policies are exceptions.

© Raymond Smith, The Long Term Care Specialist, 2010. 

The Diagnosis

June 27, 2017
In April of this year, my wife & I had an appointment with a neurologist. The complaint was occasional minor tremors. Nothing significant, but we wanted to have it checked out.
Imagine my shock when after completing his evaluation, the doctor said “You have Parkinson’s Disease.”.
I flashed back to (and talked about) my late sister-in-law who 20 years ago, suffered from Parkinson’s. Toward the end, she was wheel-chair bound and could not speak (but did communicate by squeezing my hand whenever we saw her). The doctor quickly corrected me with “Don’t let your memory of a person who had Parkinson’s 20 years ago color your expectations for today. There have been major treatment advances since then, including many new drugs that did not then exist.”.  And he said, “There is a tremendous amount of research being conducted that I know will someday lead to a cure.”.
Since that day in April, we have together gone to a multi-hour Parkinson’s overview presentation at University Hospital, participated in several webinars, heard an excellent talk about the importance of exercise, and spent hours online looking at the fantastic Michael J. Fox Parkinson’s Foundation website. We both continue our twice-weekly personal trainer workouts, and together walk a mile and a half every day, rain or shine. On top of all this we have had a tremendous outpouring of support from friends, family, our rabbis, and my wonderful clients.
I think I have come to grips with the diagnosis. Mostly, I buy into: “If you have to have an illness, Parkinson’s isn’t all that bad.”   “It is an inconvenience, not something that is life-threatening.” “There are no travel restrictions (and we do enjoy travel)…you just become tired more easily.”
The one thing that I have not been able to accept is that it is my wife who has the disease. How I wish it had been me instead. Would have been easier for me to deal with.
Still, both of us have more than our fair share of things to be thankful for:
1. We have had 50 wonderful years of marriage together and, God willing, many more to come.
2. We have two grown children who make us more proud to be their parents each day.  A daughter who is a teacher of children…imagine that!  She teaches 5th graders how to lead happy, productive, successful lives.   A son who works tirelessly to save our planet and to improve social justice for all (We agree on many things, but not everything.) while he defends the Earth.  Did I mention that last week, he presented his documentary film to rave reviews in a sold-out Denver movie theater? Well he did!
3. My wife & I have both made it into our seventies with no illnesses until now. Wow! It could have been something much worse…and it wasn’t!
4. While not wealthy, we are OK financially. No complaints.
5. I enjoy helping my clients.  My “work” is not really work…I’m having too much fun to call it that.
6. The two of us are far more than OK relationship-wise.  The relationship between my wife and myself, while always strong, has become so much stronger.  We often laugh aloud about our good fortune in finding each other. Or was it a blessing? We think the latter.
Those of you who are long-term readers of this eNewsletter know that I seldom share details of my personal life…and you never see anything about my wife (you have not yet read her name).  However, this diagnosis of Parkinson’s is too important to keep secret.
So what can you learn from this?   It can happen to anyone…at any time…no matter how healthy you think you are.  When a diagnosis does hit, you had better have your plan in place for providing long term care services.  My wife is now uninsurable.  Fortunately, we each have good coverage that was purchased years ago…when we were both healthy enough to buy it.  When my wife’s symptoms inevitably progress to the point that we need professional care, our insurance will pay for that care…from the care provider who best meet my wife’s needs.
We will not become dependent upon our children, or upon Medicaid, the endangered government welfare program.
I do not wish to make my wife’s illness into a commercial.  So I will close with this: Contact me if you have questions about Parkinson’s or if you just want to talk.
Ray
© 2017 by Raymond Smith, The Long Term Care Specialist

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Stacking: Does It Make Sense To Own More Than One Policy?

May 28, 2017

Maybe.  Let’s say you want long term care insurance that will reimburse you for $6,000 per month.  But you can only afford (for now) coverage for $3,000 per month.  You expect your available income to grow during the next few years.  Buying the $3,000 per month policy today & then another, larger, policy later could be a good strategy provided:

  1. You remain insurable.
  2. You understand that the same policy will cost more per $100 of coverage just because you will be a few years older.
  3. A comparable policy, with a comparable cost structure, may not be offered a few years from now.
  4. Neither of the two policies have a coordination of benefits clause that would prevent you from receiving benefits from both…more on that later.

Here is another situation where “Stacking” policies could work.  Perhaps you have a small, older policy with a very low premium…and you want more coverage.  Should you apply for a single new policy that provides all the protection you are looking for, & discard the old policy?  Or should you keep the old policy & add a new one that makes up the difference?

As your insurance broker, I would conduct an analysis comparing the total cost of both approaches AND the comparative benefits of the old & new policies.  Even if there is a cost savings one way or the other, I (& you) would have to consider any differences in benefits.  For example:

  1. Older policies tend to express the maximum periodic benefit in dollars per day, while current policies almost always use maximum dollars per month.  $200 per day & $6,000 per month may seem like the same thing, but they are not.  $6,000 per month lets you get reimbursed $800 for a twice-monthly speech therapist visit following a stroke (assuming you don’t spend more than $5,200 for other long term care during the month).  If your policy benefit was $200 per day, your reimbursement for the same two $400 visits would only be $400.
  2. Elimination Periods for older policies tend to be expressed as the number of required “service days”.  Newer polices most often use “calendar days”.  The difference?  Service Days only count those days in which you actually incur a charge for care.  Calendar Days count all days (whether or not you actually have paid “service”) starting with the first day you are otherwise eligible (other than having satisfied the Elimination Period).  There is no pocketbook difference if you are in a facility, but it may matter greatly if you are receiving Home Care, for less than seven days per week.  For example: If you were receiving covered Home Care four days per week, starting on January 1st, it would take until about June 7th to satisfy your Elimination Period.  With Calendar Days in the same situation, it would only take until March 31st.
  3. Inflation Protection: Older policies often had “5% compound” inflation protection.  While 5% compound may still be offered in a few cases, it has become so expensive that only 3% compound is usually presented.

My recommendation would be based upon a combination of total (combined) cost & the difference (and there always is a difference) in policy benefits.  You would always be told the pros & cons of either keeping your old policy and adding a new one to it, or applying for a single new policy that would provide all the wanted benefits.  Of course, the decision would always be yours to make.

When would it NOT make sense to stack policies?

  1. If keeping the old policy & adding a new one would be more expensive than a single new policy AND the old policy does not have better benefits.
  2. If there is a “coordination of benefits” clause in either the old or new policies that permits the relevant insurance company to only pay benefits provided by one policy for the same long term care event.  For this reason, I would always recommend that if you do buy two or more polices, they be from different insurance companies.  Then, in the absence of a coordination of benefits clause, each insurance company would be contractually obligated to pay the stated policy benefits.  Note: I have never seen an individual policy with the kind of coordination of benefits clause I have just described.  Perhaps they do exist with some group policies.
  3. Your health has deteriorated to the point you are no longer insurable…here you have no choice but to keep the old policy.  You cannot buy a new policy.

None of the above discussion applies to a situation when someone wants to replace an older (more than about 5 years old) policy with a new one to save money.  You simply cannot get here from there.  Any policy more than a few years old will always be more expensive than a comparable policy available today.  I know, because I have checked this out for many of my clients.

Ray

Disclaimer: Actual policy language, rather than the contents of this eNewsletter always takes precedence.  Long term care insurance policies vary widely from company to company & often within the same company.  Raymond Smith, The Long Term Care Specialist, does not give legal or tax advice.  Consult your tax advisor or attorney for these matters.

 

© Raymond Smith, The Long Term Care Specialist, 2017

 

Do I Own Long Term Care Insurance?

April 26, 2017

You can safely bet that I do.  In fact I own both a long term care policy & a short term care policy.

Long Term Care Policy: Issued in 2001.  A single policy covering both my wife & myself.  We each have a $270 per day benefit with an unlimited (lifetime) Benefit Period.  We also have 5% compound Inflation Protection (rarely available today & prohibitively expensive when it is).  The Elimination Period is 90 days for each of us.

Why do I have such robust coverage for each of us?  Well, I am an insurance broker specializing in long term care.  And I have been married to a wonderful woman for a very long time.  Even back in 2001, I understood the risk of expensive care that we were exposed to.  Today I am especially thankful that we purchased what we did.

 

Short Term Care Policy:  Issued in 2012.  My wife & I each have a separate short term policy.  $100 daily benefit, Benefit Period is 100 days.  No Inflation Protection.  20 day Elimination Period.  Why did I buy another policy? (actually one for each of us).  I wanted to have some coverage during most of the 90 days of the long term care insurance policy Elimination Period.  Believe it or not, I grew older from 2001-2012 & the consequent increased cost of the second policy required a compromise…as does all insurance.

 

If you read the first article in this month’s eNewsletter, you may be wondering why I have a “large” policy, but am saying that a “small” policy is good to have.  It is all a matter of affordability.  If a small policy is all that the budget can stand, then “Almost Any Long Term Care Policy Is Better Than No Policy”.  For many people, long term care insurance somewhere between the two examples is affordably appropriate.  Let me help you find that balance.  Note: Even more so, this also applies to people who are single.

Ray