6 Myths of Long-Term Care Insurance
By Bryan Miranda
The pandemic has brought to light many issues that often get pushed aside. One of those issues being senior care and something we will likely never admit to needing to deal with, aging. Whether you are on the receiving end of care or having to handle care services for an elder relative, it can be burdensome in more ways than one. Although the emotional toll may never go away, proper planning can help alleviate the financial stress. Long-term care insurance (LTCI) has been around for a while and has a handful of outdated misconceptions. Let's tackle some of the myths about LTCI.
"If you don't use it, you lose it"
For some of the older policies that exist, there is that element of, "if you don't, use you lose it". Essentially, you could be paying a premium into a policy for years only to pass away without ever using any of the benefits, thereby seeing those premium dollars squandered. Additionally, some of the old policies had premiums that could potentially rise over time as the cost of care rose. Newer policies have liquidity and death benefit features added into them as well as guaranteed premium agreements.
"I'm not going to need this"
A 65-year-old has a 70% chance of needing long term care services within their lifetime. On average, a female requires 3.7 years of care services compared with the 2.2 years a male would need them. Based on the experience I have with discussing care services with clients of mine, after they realize that they may need it, they will quickly pivot to a common phrase: "Well IF I need this, I have my family here to take care of me!" Without going into much more detail on this, I highly recommend asking your family if they are as committed to caring for you in your later years as you are committed to volunteering them for their services. And plan accordingly.
"Medicare and health insurance will cover it"
Medicare typically will not step in to cover costs for long term care inside the home. There may be some exceptions made on rare occasions. For example, health insurance and Medicare will help offset the costs of follow-up treatment and therapy recuperating from surgery. After 100 days, you are on your own again to figure out where to pull funds from. If you heal up enough to be moved out of that therapy clinic and into a care facility before your 100 days are up, you are on your own as well.
"Gotta keep those receipts!"
There are two main types of LTCI benefit payouts: Indemnity and Reimbursement. Indemnity is a monthly benefit that pays regardless of the amount of care received. Reimbursement is paid based on the actual cost of care received. Let's take a look at a quick example for each. If your policy states that you will have a 60-month indemnity benefit payout of $10,000 per month and the cost of care per month is $6,000, you would still get $10,000 per month. If your policy states that you will have a 60-month reimbursement benefit payout of $10,000 per month and the cost of care per month is $6,000, you would get $6,000 per month. In most reimbursement plans, care coordinators will work with you to have a direct reimbursement payment to the care facility you are working with. In the old days, you often did need to save your receipts to prove what you paid. With the help of newer technology and systems, most of these benefit payments are seamless.
"They'll reject the claim"
First, you must understand what type of claim would be covered. If you lose the ability to perform 2 of the 6 Activities of Daily Living (ADLs) or have a cognitive impairment (e.g. Alzheimer's, Dementia, etc), those are the main trigger points to submit a claim. The 6 ADLs are transferring, toileting, dressing, eating, bathing, and continence. Each claim submitted is evaluated by a specialist. Medical records are retrieved, and if the claim is supported through the documentation made by your doctors, there is a strong probability of a successful claim.
"It's too expensive"
LTCI plans can be customized to fit your budget. With other aspects of financial planning, the earlier you can address the concern, the better off you are going to be. So yes, LTCI can be expensive if you fail to plan properly. LTCI works the same in that it allows your premium dollars to be better leveraged over a long period if you are able to get some of these plans set up in your 40s, 50s, and 60s rather than waiting into your 70s and 80s. Cost aside, the longer you wait, the higher the chance your application for an LTCI policy may be denied based on medical conditions.
Please reach out to your advisor to discuss not only your options #but options for those around you. Have the hard conversation with older family members. This is a critical part of planning that can unnecessarily eat away at other assets rapidly. We will all get old one day, so we might as well have a plan for it.
Securities offered through LPL Financial, Member FINRA (http://finra.org/)SIPC(https://www.sipc.org/). Investment advice offered through Gerber Kawasaki Inc, a registered investment advisor. Gerber Kawasaki and Gerber Kawasaki Financial Advisors are separate entities from LPL Financial. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Past performance does not guarantee future results.
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