As you move into your 60s, it is natural to think about the risk of needing long-term care. Most employers, including Lockheed Martin, do not provide access to long-term care insurance. That requires you to ask questions and find answers elsewhere. For many, that means looking into the cost of a few years in a nursing home and then navigating the various complexities of the long-term care insurance market. However, here are some very important questions you need to ask yourself first. What is the impact of an immediate long-term care event on me, my family, and my finances? What is my plan to respond to the impact of an event? What is the cost of additional care at home? Once you have answered these questions, you can consider long-term care insurance to cover the financial gap caused by the event.
It may be unsettling to think about a long-term care event happening now. No one wants to think about a stroke, a fall or early onset dementia affecting us or the ones we love. But coming up with a plan for the potential impact of an event should be your first goal. If you are married, then you most likely will want in-home care first before moving eventually to a facility. If you are a 65-year-old, the Department of Health and Human Services says you have a 65% chance of using some sort of care, personal or professional, at home during the remainder of your life (U.S. Department of Health and Human Services 2017). This raises additional questions. Can you physically lift and attend to your spouse? Where do your children live? Even if they are near can they take time off from work and their own family responsibilities to be of assistance? The answers to these questions allow you to determine the type and amount of additional care you might need at home.
Professional in-home care costs between $20 and $25 per hour. Consider at least 20 hours per week to start. That would add $1,600 to $2,000 per month to your expenses. With fulltime care that leaps to as much as $4,000 per month (Genworth 2019). Remember that you will still have your other sources of income such as social security, your pension from Lockheed Martin if you have earned one, and any distributions from investment accounts. However, they will primarily be used to pay for your regular living expenses, which continue, such as housing costs, utilities, food and any out of pocket medical costs. The financial impact of a potential long-term care event is what typically leads to the consideration of one of the four ways to purchase long-term care insurance to cover the gap.
- Traditional, or term, stand-alone policy - you pay an annual premium and the plan typically covers most long-term care services. Drawbacks are that the premium is spent regardless of your use of the future benefits and the premiums typically are not fixed and have been subject to rather sharp increases over time. One advantage is that it may be easier to attain since underwriting requirements for the stand-alone policy are for the risk of long-term care only and not life insurance.
- Cash value life insurance policy with a long-term care rider - Another way to purchase long-term care insurance is as a rider attached to a cash value life insurance contract that will deplete the death benefit if you need care. The premium is “split” to cover both the life and the long-term care portion of the policy. Unlike the stand-alone policy, the premiums you pay overtime are, in effect, paid back to a beneficiary if you die before accessing the long-term care benefits. These policies are typically more expensive since you are paying for both long-term care and life insurance coverage.
- Hybrid, or “either/or”, policy - Another option is a hybrid policy that guarantees long-term care benefits during your life. If you use up all the benefits, the policy ends. However, if you die before using your long-term care benefits, there is a death benefit paid to your beneficiary equal to most or all your premium paid.
- Single premium deferred annuity with a long-term care rider - The final way to access long-term care coverage is to tie it to a single premium deferred annuity. Part of the earnings on the annuity pay for the long-term care rider. One advantage is that the expenses taken out for long-term care are tax free. In addition, the underwriting requirements are sometimes less than the life insurance policies.
It is important to weigh more than just price when considering these various solutions. Many insurance companies provide services that go far beyond the payment of your long-term care expenses. Obviously, the financial benefits are the most crucial to consider. Critical questions include the following. Are my benefits guaranteed? Will my benefits grow with inflation over time? Do I ask for a specific amount per month or am I required to submit receipts for reimbursement? You should also consider if the company issuing the policy will help you in establishing care. The process of finding, vetting and hiring adequate care can be a challenging task to say the least. This additional benefit is usually referred to as concierge service. Some companies will even pay a family member to provide care initially for a period of months. Once your care is established, find out if the company helps you manage that care going forward. Again, a company should do a lot more than just send you a check.
Do not put off starting this process. You can never plan for the financial and emotional impact of an unexpected long-term care event. The sooner you start, the better chance you have of understanding your risk and qualifying for the best type of policy to fit your needs. A financial advisor experienced in long-term care can walk you through the process.
“Cost of Long Term Care by State: 2019 Cost of Care Report.” Genworth, Genworth, 21 Nov. 2019, www.genworth.com/aging-and-you/finances/cost-of-care.html.
“How Much Care Will You Need?” Long, U.S. Department of Health and Human Services, 10 Oct. 2017, longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html.