Five Common Myths About Long-Term Care and Why It Matters to You!
By Guest Blogger Kaitlyn Duchien, RICP®, RIA Consultant at Palladuim Group
Long-term care (LTC) and how to pay for it has become a growing topic of interest as 10,000 baby boomers are reaching age 65 every day, and nearly 70% of them will need some form of LTC during their lifetimes.1 Yet, it’s also no secret that the costs of living are rising rapidly as we face the highest inflation rates in over 40 years.2 As our population ages, the demand for LTC services will only increase, further driving up expenses. To put this into perspective, 30 years from now, an LTC event lasting just five years is projected to cost more than $1 million.3 So, how do we plan for the uncertainties of an LTC event as costs continue to skyrocket?
Let’s start by dispelling five common myths about LTC. By being properly informed, you can determine the best course of action to prepare for an LTC incident, customized to meet your unique needs.
Myth #1: Medicare or Medicaid will pay for my long-term care.
As much as we may hope that government benefits will cover all costs of care, unfortunately, this is not the case. Most individuals who need ongoing care require assistance with day-to-day living, not skilled medical attention. Medicare only covers skilled care immediately after hospitalization and will only pay for a limited time. It’s designed to pay for severe, short-term illnesses and not for ongoing custodial care, such as assistance with eating, bathing, or dressing. For most people, Medicare alone will not be a sufficient means of funding longevity needs.
Medicaid, on the other hand, will cover the costs of nursing home care or skilled medical care provided at home. However, because Medicaid is a needs-based welfare program, the only way to qualify for benefits is by spending down assets to nearly nothing (usually around $2,000 in most states).4 Additionally, the quality of care and the facilities where care is provided is determined by the state and are subject to the availability of those resources. So, even if you qualify for Medicaid, you may not be guaranteed admission to a nursing home until a bed becomes available. For these reasons, Medicaid should be a last resort when it comes to funding LTC.
Myth #2: Long-term care insurance is unaffordable.
Undeniably, as the cost of care has risen, so has the cost of insurance. Yet, through challenging circumstances comes increased opportunity. The insurance industry has continuously innovated over the years to meet the growing need for affordable coverage, resulting in more solutions available today than ever before. Most modern LTC policies offer a variety of features, such as inflation riders and return-of-premium benefits, that can be customized to meet your unique needs within your budget. It’s no longer a one-solution-fits-all marketplace.
Additionally, contrary to popular belief, it’s not always necessary to purchase enough insurance to cover all LTC expenses. Even holding a small policy covering a portion of your anticipated expenses can significantly reduce the risk of an LTC event derailing your retirement plan or exhausting assets earmarked for a legacy.
Myth #3: If I buy long-term care insurance and never need to use it, I’ll lose the benefits.
If you purchase traditional LTC insurance, then yes, this could be true. Original LTC insurance policies were designed to provide the highest coverage amount possible with the lowest premium. These traditional policies function similarly to other types of insurance, like home or auto, with a “use it or lose it” framework.
Over time, hybrid policies have emerged to combine the benefits of life insurance or annuities with LTC coverage. These newer solutions allow you, as the policyholder, to retain control over your assets set aside to pay for LTC while often providing additional tax-free benefits beyond your premiums paid – should you go on claim. If the you change your mind about the purpose of these assets, you have a couple of options. You can walk away from the contract with the remaining cash value, or you can leave the cash value as death benefit to your loved ones. While these hybrid solutions may require higher premiums for coverage than traditional policies, their additional flexibility provides peace of mind that your assets will remain with you or your loved ones, regardless of whether an LTC event occurs.
Myth #4: I don’t need long-term care insurance if I can afford to self-fund these expenses.
Even if you have the financial resources to pay for a substantial LTC event out of pocket, the better question is, “Do you really want to?” Why not leverage a smaller portion of those resources to cover some of the costs in a tax-advantaged manner and preserve the rest to leave a legacy or invest toward other goals? Many people have funds set aside for emergencies in low interest-bearing accounts. Simply repositioning these idle assets into a hybrid LTC policy could provide higher growth potential on a tax-deferred basis while multiplying the funds available to pay for care on a tax-free basis. It’s all about working smarter, not harder.
Myth #5: I’m young and healthy, so I can wait to develop a long-term care plan.
Though no one wants to think about getting older or watching their health decline, it’s much easier (and cheaper) to plan for these circumstances long before they become a reality. Two things are certain: costs of care will only continue increasing over time and health will change, usually not for the better. For these reasons, we’ll have less-favorable options in the future to pay for care versus funding costs today. The ideal time to develop a plan is in your 40s and 50s, even if a need for care seems far away. Not only will this ensure you have the most options available to fund care at the lowest cost possible, but it will also protect you against a premature event, as nearly 40% of those receiving LTC are under age 65.5
Connect with Guest Blogger from Palladuim Group
If you have questions about LTC or would like to begin developing a plan, please reach out to Kaitlyn Duchien via email at Kaitlyn.email@example.com, call 260-478-0634 and connect with Kaitlyn on LinkedIn. Through a trusted partnership with the experienced Palladium Group team, you can ensure you are positioned for success, no matter what uncertainties life may bring. Learn more about Palladium Group.
Washington Wealth Advisors supports your financial knowledge
A key pillar to the Washington Wealth Advisors mission is sharing financial knowledge. We believe it empowers our clients and community. We appreciate Kaitlyn for sharing this overview. If you’d like to discuss how your long-term care plan fits into your overall financial planning strategy, please contact us at 703.584.2700, email firstname.lastname@example.org or book some time with your WWA advisor.
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5Rogers, S., & H. Komisar. Who needs long-term care? Fact Sheet, Long-Term Care Financing Project. Washington, DC: Georgetown University Press, 2003