A lesson about long-term care insurance

Originally seen in USA Today

Dear Pete: It's too late for me. I'm 89 and my husband and I have been retired for 19 years. We started out with about $2 million, enough for us to live to age 120, so they said. We never took out more than our required minimum distribution (RMD). Two years ago the health effects of Parkinson disease's on my husband became severe enough that he needed expensive full-time care. We had never purchased long-term care insurance, as my husband thought he could self-insure and that he was invulnerable. I can no longer afford to live to 120. I think you should stress getting this insurance while you are young and it is relatively inexpensive. I am now taking out more than my RMD to pay the bills and count myself lucky that I have generous children. – Joan

Thank you for sharing this story. Sometimes we forget how true wisdom is acquired. It comes from experience, from pain, and from victories. It comes from making mistakes. And it comes from good people such as you who are willing to bare their soul and their finances to warn others.

I guarantee, after reading your story, numerous people will take action and protect their finances against the astronomical costs of long-term care.

You should extend yourself some grace, too. The reality is everyone, no matter how well-planned their finances are, finds themselves in situations where life happens. You had your finances planned out to keep you going to age 120. And although our health doesn’t get better as we age, no one expects to face Parkinson’s and the expenses that disease entails.

Most people should explore long-term care insurance, especially if they are concerned about their assets being diverted entirely to their medical care, thus leaving the rest of their family's obligations unfunded.

There are two primary types of long-term care coverage people should know about. The first is traditional coverage. It's a ridiculous name considering that the concept of long-term care coverage is only a few decades old. Under the traditional arrangement, a person pays premiums, usually starting in their 50s or 60s, and then files a claim, which typically begins to pay after a 90-day waiting (elimination) period. The policy continues to pay based on the length of coverage purchased and the amount of daily benefit purchased.

For instance, if you need to go into an assisted living facility (or in-home care), you must pay for those services out of pocket for the first 90 days. That period is called an elimination period. It’s basically a time deductible. If you still need services after the completion of the elimination period, the policy begins to pay based on the daily benefit purchased. This daily amount can vary greatly, but don’t be surprised to see this benefit at more than $200 per day. The policy continues to pay this hypothetical $200 a day as long as your benefit period lasts. It could be two years, could be five years, or it might even be for the rest of your life.

As you can imagine, all of these variables affect what you’ll pay the insurance company on a monthly basis. And these types of policies can also unexpectedly increase in price.

If the thought of paying into a policy month after month and finding you have nothing to show for it if you don’t actually file a claim frustrates you, then you're not alone. The long-term care industry has recently acknowledged this frustration and created a more modern insurance solution – hybrid policies. These products are also called asset-based long-term care.

These types of policies make more sense to me. Instead of simply purchasing long-term care, you would purchase a multiuse product such as a life insurance policy with long-term care benefits or an annuity with long-term care benefits. With these types of products, you don’t have to root for a claim to feel vindicated in your purchase decision. If you go your entire life without filing a claim, you will still hold something of value. If you plan on exploring your long-term care options, start with these types of products.

If you choose to ignore the possibility that you will need long-term care, or you choose to not prioritize it, then you may share Joan’s reality. You don’t want that for yourself, Joan doesn’t want that for you, and neither do I.