Margaret was in her early 70s when she first walked into our office, looking healthy and able-bodied, but upset. Her beloved husband had been diagnosed with advanced Alzheimer’s Disease, and she’d recently had to put him in a care facility. The house where they’d lived together for 30 years was empty without him, and she struggled with loneliness.
Unfortunately, there was more to her sadness than just the pain of separation from her spouse: They had no long-term care insurance, and the facility that looks after him costs $75,000 a year. She wants the best for her husband, but with total assets of $750,000, they’re burning through 10% of their money a year. They might be forced to sell their home just to pay the bills. When we went over the numbers, it became clear that Margaret faced not only the loss of her spouse, but the risk of being left penniless as well.
A few weeks later, I called to schedule a follow-up meeting to go over her cash flow. When she didn’t answer, I phoned her son — a 40 year old married professional who served as his parents’ caretaker. Again, no answer. My growing concern was borne out the next morning with the son’s brief text message: “Mom had a stroke. We will have to delay the meeting.”
Do You Need Long-Term Care Insurance?
Margaret’s story might sound like a television melodrama, but it’s entirely true. And she’s not the only one in that situation: Americans are living longer each year, and with age comes eventual illness. While only 35% of Americans believe they will need long-term care*, according to the Department of Health and Human Services, 66% of those over 65 actually do**. Given that two-thirds of the senior population will eventually require this expensive service, it’s a good idea to at least consider long-term care insurance. (Note: While we do analyze insurance policies, we don’t sell it.)
The clients we work with at Pinnacle are affluent — we require a minimum of $750,000 of investable assets when we take someone on — and those in the higher range may be better served by self-insuring. While those with assets in amounts closer to $750,000 could see their finances significantly impacted by having to pay for long-term care out of pocket, a family with $5 million available would likely not.
In coming to a decision over long-term care insurance, one should consider what one hopes to protect. A modestly affluent family could see their quality of life impacted significantly by the costs of long-term care. In that situation, a decision to purchase long-term care insurance would be based on the desire to protect the fiscal health of the family. They might choose, for example, a policy with higher benefits, a shorter duration, and a relatively brief elimination period (the time period between the beginning of the long-term care and the receipt of the benefits — basically, the ‘deductible’ for this form of insurance). A family in that situation would be helped by having most (or all) of the daily medical costs covered, while not having to remain out of pocket for long before their benefit payments begin. That kind of policy would be expensive, though, so they might find it more affordable to go with something that covers a portion of their exposure, but not the whole of it.
On the other hand, a family with $5 million available would likely be able to self-insure without much effect on their lifestyle. In that case, a decision to purchase long-term care insurance would be based almost entirely on the desire to protect family assets for future generations. They might opt for catastrophic-only coverage with a longer elimination period, since they can afford to pay for care out of pocket. Or conversely, they could see long-term care insurance as paying-for-future-healthcare-now, and go for a lifetime policy with higher-than-average benefits (to cover the premium quality health care they expect).
As with most areas in financial planning, every situation is unique. Given the probability that you or your spouse will eventually require long-term care, you should decide now how you intend to cover the costs — through insurance or by paying out of pocket. If you’re a Pinnacle client, speak to your wealth manager; he or she can help you make the best decision here, for you and your family.
* Genworth/Age Wave, “Our Family, Our Future: The Heart of Long Term Care Planning,” 2010
** U.S. Dept. of Health and Human Services National Clearinghouse for Long Term Care Information, October 22, 2008