Long-Term Care Series: Few Are Planning For Long-Term Care…A Mistake – Part 1

Another tool underutilized by many families is long-term care (LTC) insurance. This author unfortunately has

Long Term Care Insurance is Underutilized

Long Term Care Insurance is Underutilized

scars on his back due to not having LTC insurance, so I want to ensure that we spend adequate time addressing it from a variety of different angles.

What is LTC insurance? In the event your loved one requires long-term care – assisted living, nursing home or others — LTC pays a benefit to offset the cost. As with many life event insurance policies, LTC insurance is easier to get and less expensive if you get it earlier in life.

Understanding Long-Term Care Insurance

The most logical place to start is from the viewpoint of a major insurance company. A dear friend of mine for over 15 years, Patrick Cloyd is an agent for State Farm. He agreed to provide me some introductory materials so that you learn some of the basics about LTC insurance.

This post is not intended to be a pitch for State Farm. Rather, I thought it would be useful to understand the need for LTC insurance from the perspective of an insurance company. Since these articles were written by Patrick, I am posting them in their entirety.

I’ll post these four articles over the next few weeks. After that, we’ll look at the real-work impact of LTC on your finances.

Speaking first hand, failure to having LTC insurance of some sort can lead to an enormous financial burden.

A Wake Up Call to America

Below is Patrick’s first article.

A Wake Up Call to America: Study shows few are planning for Long-Term Care

By Patrick Cloyd,State Farm® agent

Patrick@cloydagency.com
(410) 766-4488

Wake up, America! A financial crisis could be looming for which you are not prepared. This is the loud and clear conclusion of a recent Roper study about long-term care which shows that most Americans have done little to prepare for what could be one of the largest expenses they’ll ever face – their long-term care. The American Society on Aging (ASA) released the study.

“This study is a real wake-up call for people to start thinking about long-term care,” said ASA’s Jim Emerman. “People need to take the first step of getting some guidance about their long-term care needs. Careful planning can help preserve your options and protect your assets if you ever need long-term care in a nursing home, an assisted living facility or even in your own home.”

But the Roper study of people 45 and older shows how few are actually taking that important first step. More than four in five (86 percent) of the people surveyed said it was important they have enough money to be able to choose a long-term care setting if they or a loved one needs it. But only 37 percent have actually started saving money to cover those costs.(1)

At the same time, while the overwhelming majority (89 percent) believes it’s important or very important to have some type of private or government coverage for long-term care, only 17 percent have bought insurance that specifically provides it.(2)

Long-term care is for people who need help taking care of themselves after an injury, illness, stroke or disease. While most people think of it simply as moving into a nursing home, it can also include having a healthcare aide come to your home or staying in an assisted living facility. Surprisingly, 40% of the people who need long-term care are actually quite young, working adults under the age of 65 who need help after an accident or an injury.(3)

Why aren’t people planning for this vital need? After all, we plan for retirement, for college and other important things. The survey, which was funded by State Farm(4), found considerable confusion about long-term care. For example, almost half the people surveyed mistakenly believe their health insurance or disability insurance will pay for long-term care. Others are not aware that Medicaid will only cover long-term care if you’ve used up almost all your financial resources. And, in the most telling comments of all, half said since they won’t need long-term care until they’re older, so there’s no need to think about it now.5 It’s time to wake up and change that way of thinking.

Given the fact that 71.8% of people over the age of 65 will need some form of long-term care, families need to consider long-term care insurance as part of their financial plan. Long-term care insurance can help protect assets, preserve choices and provide independence.

Families should at least be discussing their individual needs with someone they trust.

1. The Roper survey findings will be posted on statefarm.com® at www.statefarm.com.

2. Study conducted by Roper ASW, August 2002. Released by State Farm Mutual Automobile Insurance Company and the American Society on Agency (ASA), April 2003.

3. GAO analysis of information from the Department of Health and Human Services and the Institute for Health Policy studies at the University of California, San Francisco. As cited in, “Long-term Care: Current Issues and Future Directions, General Accounting Office Report to the Chairman, Special Committee on Aging, U.S. Senate.” (GAO/HEHS-95-109). April 13, 1995: pg. 7. The level of coverage provided by long-term care insurance depends on the type of policy you purchase. Some types of care received may not be covered by long-term care insurance.

4. State Farm Mutual Automobile Insurance Company Home Office: Bloomington, Illinois – statefarm.com®. The American Society on Aging is not an affiliate of State Farm. The Long-Term Care Insurance policy 97058 is underwritten by State Farm Mutual Automobile Insurance Company.

5. Lewin Group estimates based on the Brookings-ICF Long-term Care Financing Model, 1992. As cited in, “Long-Term Care: Knowing the Risk, Paying the Price.” Health Insurance Association of America (HIAA). 1997: pg 12. The level of coverage provided by long-term care insurance depends on the type of policy you purchase. Some types of care received may not be covered by long-term care insurance.

  • Grant M

    Ryan,

    I found your blog from the link on “minding our elders”, and have subscribed to your RSS feed. I currently have two healthy parents in their early 60s, however I work in the industry so you have piqued my interest.

    In regards to LTC insurance, do you or Patrick have any advice for how to broach the conversation with my parents? Ironically I think I’m far less comfortable with the concept of my parent’s mortality than they are, but either way it seems like a difficult discussion considering the implications.

    I’m an only child living on a modest salary, and though my parents are well off, I know how quickly personal assets can be drained in case of an acute medical event. I feel guilty bringing it up, as if my motivations are selfish, but I’m also worried that I won’t have the financial wherewithal to care for them should something happen. Any suggestions?

  • http://www.insideassistedliving.com Ryan

    Grant M – I have my own personal opinions, but let me check with Patrick and see if he has some opinions as well. Thanks for reading and for sharing your very real concern.
    Ryan

  • Patrick

    response to Grant. …
    Thats a tough call . Getting in to that talk with your parents can be touchy. Remember, we are talking about custodial care. Everyone has different relationships with their parents. I’ve always been pretty direct with my parents so they don’t think there is an alternate motive. A good start might be to open up a conversation about retirement and what plans they have over the next 5, 10, and 15 years. Let them do the talking. Good luck.

  • http://www.insideassistedliving.com Ryan

    Grant – Patrick’s advice should be pretty useful. When I speak to my mom in hindsight about her planning, she tells me she planned for everything but custodial care. She planned to have enough money to last her well into old age, and she planned to have her estate in order should she die. She did not plan so well for the need to have custodial care.

    I would walk through a few different scenarios with them in terms of level of care required, age, etc. I would also be sure to include a scenario, although unpleasant, in which one of them is no longer living. While it may be a challenging discussion, I am sure that your parents will understand that you’re doing it because you care. Good luck to you, and let us know if you we can help. A financial planner can also help work through the numbers. Let me know if you need a recommendation.

  • Grant M

    Thank you both for the advice, I’m sure it will help! I feel that I may be over-thinking it, and that I need to be a bit more direct.

  • Josephine Stanforde

    My children needed FAR RLAU-2 last month and saw a website with lots of fillable forms . If you are requiring FAR RLAU-2 too , here’s http://goo.gl/GLOjI6