Many of you know that my Dad was on Hospice care for six years before he died.
He had COPD and all his mental faculties were intact, so he was able to live at home where he was comfortable — which was of the utmost importance to those of us close to him.
Even with the Hospice care, we supplemented his care with paid sitters, cleaning assistance, and Meals on Wheels. Not to mention, my siblings and I contributed where we could. My sister checked in daily and took over paying his bills. My brother lived there so Dad had help with his everyday needs and someone to maintain the house. And since my other brother and I lived out of town, we visited on the weekends to help out where we could.
As a family, we surely employed an all-hands-on-deck approach, but even then, we were lucky.
I say “lucky” because many years earlier my dad invested in long-term care insurance. I cannot imagine affording the level of care that sustained him for six years without it. In fact, he told me one time: if they were to take away his Hospice care, he would rapidly be dead.
During my crash course in long-term care, I realized how ill-prepared most people are for unexpected elder care expenses. A study from the National Bureau of Economic Research reinforced my views by stating that only 10% of the elderly currently have a private long-term care insurance plan in place.
So what does that mean for the other 90%? High out-of-pocket costs, or worse, the inability to cover related expenses which could lead to a rapid decline in health.
Clearly, neither option is ideal.
Like most things, there is no one-size-fits-all answer to the question but rather several equally adequate options, depending on your circumstances. Let’s look at a couple of the most common ones: Long Term Care Insurance and Critical Care Insurance.
Long-Term Care Insurance
Long-term care insurance covers your medical needs in cases when chronic, long-term illness prevents you from being able to maintain your quality of life. These include bathing, dressing, preparing meals, and the like. Also known as “activities of daily living” or ADL, a long-term care insurance policy kicks in when individuals are no longer able to perform two ADLs and/or have a cognitive impairment.
This insurance allows you to protect your savings by paying for those medical expenses associated with a long-term illness. It provides funds to assist with caregiver responsibilities and allows you to remain in your own home longer. That’s always better than ending up in a state-run facility.
Who Should Buy Long-Term Care Insurance?
While the general assumption is that long-term care insurance is only for older people, it is estimated that 37% of people age 64 and younger used some type of long-term care. Many times this is the result of accidents or injuries that have resulted from a critical illness.
Needless to say, long-term care insurance is a value-add at any age and can be used for a variety of care and rehabilitation facilities.
Here are a few of the most common:
- Nursing home care or assisted living
- In-home care
- Respite and hospice care
- Physical and occupational therapy that is not covered by insurance
- Alzheimer’s facilities
Important Policy Elements to Consider
At Pathfinder Planning, we partner with Low-Load Insurance Services (LLIS) nationally, and Nathan Garnett of Doll & Associates locally, to provide long-term care to clients.
Here are a few of the important elements that are included in their policies:
Elimination period. Sometimes called the deductible or waiting period. Typically 30, 60, 90, 180, or 365 days. During the elimination period, other people or assets would be relied upon for care. The longer the elimination period, the lower the premium.
Benefit amount. The maximum amount paid by a policy on a daily or monthly basis. We can help determine how much benefit is needed by providing the current cost of care in an area. Lower benefits mean lower premiums. As with most types of insurance, younger and healthier people get lower rates.
Policy Options
- Inflation option. Costs for LTC have increased at a steady rate. This option offers protection from rising LTC costs by minimizing the effects of inflation.
- Partner discount. Available even if partner doesn’t apply. Applicable to married and unmarried couples.
- Shared care. This option pools partners’ benefits, allowing each partner to access the other’s.
Critical Care Insurance
According to a report from The American Journal of Medicine, more than 60% of bankruptcies are medically related. Critical care insurance aims to lower that number by providing lump sum benefits (that may be income tax-free) and can be used for anything.
Critical care insurance (also known as: critical illness insurance) is paid when you are diagnosed with specific diseases or conditions.
Some conditions that are commonly covered are:
- Heart attack
- Stroke
- Cancer
- Organ Transplant
- Kidney Failure
In addition, conditions like hearing loss, blindness, and loss of limbs may be partially covered.
Who Should Buy Critical Care Insurance?
In the same way that thinking long-term care insurance is only for older adults, the assumption that critical care insurance should not be considered by young people is also false.
According to Cancer.gov, while the majority of cancer diagnosis occurs in people aged 65+, diagnosis for people aged 20-49 has increased by 13% when comparing the years from 1975 – 2013.
When it comes to managing a critical illness, there can be a number of unexpected expenses that may creep into your budget. Critical care insurance can help you pay for these extra expenses without any additional stress or worry.
Here are a few of the common ones that would be covered by critical care insurance:
- Medical Costs (Deductibles, co-pays and prescriptions)
- Transportation Costs
- Loans (Mortgage, Auto Loans, Credit Cards)
- Lost Wages
- Childcare Expenses
- Special diet or supplement needs
Speaking from experience, the fact that my Dad had coverage in place truly lifted a burden from us financially; however, the emotional toll of caring for a dying parent still comes with a price. Your family will suffer enough without the additional burden of worry about how to pay for your care.
If this is something you need, don’t let the price be a deterrent.
As I once heard it said: when it comes time to pay for care, would you rather sign the front of a check or the back of a check?
Pamela J. Horack, CFP® of Pathfinder Planning LLC provides personal financial planning advice and asset management for a simple fee to young adults and working families in North and South Carolina through group classes, one-on-one planning, and ongoing advice.