Both of my parents turned 60 this year and I’ve been thinking a lot about what that means for our family. Thankfully both of my parents are in good health and they’re living full lives — my mom is learning Spanish and still running marathons, and my dad is still happy and hard at work. Thankfully, due to incredible increases in life expectancy in the US over the last 50 years, my parents can expect to live for many more years. According to the Social Security Administration actuarial tables the life expectancy at age 60 is 21 more years for men and 24 more years for women.
Unfortunately, along with increased longevity comes an increased risk of needing additional care and support later in life. When someone who is 80 has a fall and breaks a hip, or has a stroke, or their memory starts to fade, they need support, and not the kind of support that you find in a hospital. This support can come in the form of needing someone to help buy groceries and cook meals, needing reminders about which medications to take, or needing help with other basics like bathing or just getting around the house. While it’s not something people look forward to as they sail towards retirement, it’s definitely something to think about.
About long-term care
52% people turning 65 this year will need this type of long-term care at some point in their lives, and the length of time they need it for can really range — although some people only need assistance for less than a year while they’re recovering from, say, breaking a hip or having a stroke, others will need care for years. People with dementia or Alzheimer’s can need specialty care for many, many years.
Unfortunately, this sort of care is not cheap. Nursing home costs range from $4,500 per month for a a semi-private room in Oklahoma, to $13,505 per month for a private room in Connecticut, and the average cost of in-home care hovers around $4,000 per month all across the country. Additionally, and this comes as a surprise to many people, neither Medicare nor private health insurance will cover these costs.
While I like to hope that neither of my parents will face issues like these, I know it’s not wise to cross-my-fingers-and-hope. Neither myself nor any of my siblings live in the same state as my parents. If either or both of them ended up needing additional assistance it could put a real strain on our family. And while my parents have a decent nest-egg set aside for retirement, even one incident requiring some amount of long-term could take a substantial chunk out of their savings and would put them at risk of not having enough money to last through their retirement. If, god forbid, they experienced a condition that required care lasting longer than a year it could bankrupt them.
It makes me nervous to think about what their lives would look like if this were to happen. In that circumstance, they could bankrupt themselves to go on Medicaid, which would help them pay for care. But there are a few issues with that plan:
- The facilities that Medicaid will pay for are generally not the highest quality
- This leaves them with no assets, other than social security, to pay for everything else (housing, food, vacations, gifts for grandchildren, etc.)
This means that my siblings and I would be on the hook for helping out my parents. At least one of us would likely need to move close to home to help out (possibly interrupting a promising career to do so), and we’d have to find some way to share the financial burden. Besides being costly in pure dollar terms, the strain that this type of situation puts on family ties can be incredibly destructive.
My entire family has an interest in avoiding this situation, and for that reason we’ve been encouraging my parents to explore the option of long-term care insurance. We’ve even been thinking about splitting the premiums with my parents if that makes it more feasible. As I have been researching the policy options, I found that focusing on four key areas helped me to simplify the decisions around creating a long-term care plan. By breaking down the problem into smaller components, I was able to feel more confident in my family’s plan to handle the scenario where my parents might need long-term care. Here are the areas that you should also consider:
Hybrid vs standalone policy
- “Hybrid” long-term care insurance policies typically take the form of a whole or universal life insurance policy with an additional “rider” that adds additional long-term care insurance coverage. This type of policy can be appealing in situations where the kids are paying premiums because it combines a savings / investment component with the benefits of long-term care insurance. However, these policies are much more expensive than standalone policies (in terms of total premiums).
- Standalone long-term care insurance policies are just as they sound: they are policies that only cover long-term care. They are generally cheaper when comparing premiums and are also generally much simpler to understand than hybrid policies. However, this is “use it or lose it” insurance, so if your family never ends up needing long-term care those premiums can feel “wasted”.
What type of coverage?
Long-term care insurance is, sadly, a really complex product. Here are some of the key options you’ll need to make decisions on:
- Elimination period: this is like the “deductible” for your insurance policy — it specifies how many days you will have to pay for care out-of-pocket before the insurance kicks in. Most policies have option for 30, 60, and 90 days. (The longer the elimination period, the lower the premium.)
- Daily benefit amount: This is the maximum amount the insurance company will pay for long-term care, per day. I think $150 per day is the minimum amount you should choose as this will roughly cover the cost of part-time in-home care or an inexpensive assisted living facility
- Benefit period length: Normally measured in years, this is the maximum number of years the insurance will pay out for. Insurance coverage with unlimited benefit periods are now rarely offered and when they are the cost is very high. 3-5 years is a good amount of protection for most people, but it does leave you exposed if you end up being one of the 5% of people who ultimately needs more than 5 years of care.
- Inflation protection: this is very important, and you definitely want this. Long-term care costs have been increasing at a rate of 4.5% per year over the last 15 years and you want to make sure that the coverage amount you’re paying for today will actually cover your needs 10 or 20 from now.
What are my other options?
If buying long-term care insurance is unappealing, you can:
- Do nothing and risk it: This leaves you exposed to potentially large bills and the risk of seeing your parents be bankrupted by long-term costs and ending up in a facility accepting medicaid reimbursements.
- Save enough to self-insure: If you have enough money in the bank to cover the costs of the care, then you don’t need insurance! However, it’s difficult for many people to actually save enough to be able to afford the worst-case outcome should the need arise. The high variability in potential costs is what makes saving for this eventuality so difficult.
When do I need to do this? Can I just deal with this later?
The prime age to buy long-term care insurance is between the ages of 50 and 65. After age 70, most insurance carriers will not offer you a policy. Additionally, the younger the person is when they buy their policy the lower their rates will be (so buying when you’re younger and healthier allows you to lock-in lower rates).
If your parents are between the ages of 50 and 65, the time is now!
Get Bolster
Here at Bolster we are reimagining long-term care insurance. The offerings we are building will include options for families to split long-term care planning costs. By helping to share in some of the costs, you might inspire your parents to do more to plan for their future care needs.
If you’d like to learn more about how we are making long-term care planning easier, sign up for our free preparedness review.