Long Term Care: What Do You Know? How Can You Plan?

 LONG TERM CARE:  WHAT DO YOU KNOW? HOW CAN YOU PLAN?

Planning for long-term care can be a daunting task and often something that you do not seriously think about or discuss. The insurance policies covering this risk are constantly changing making it that much more confusing. There is the uncertainty of what types of services will be needed in the future making it that much more difficult for you to tailor policy features to your personal and financial preferences. More to the point, it’s a topic that is easily avoided as you deal with the daily tasks of life as a healthy, active person.

However, let me assure you that you can put a plan in place. The first thing you have to understand and accept is having a plan is a necessity.  Understanding the risks involved without having a plan and its consequences to your family should give you the impetus to wade through all the information. You will eventually reach a point where you can make a comfortable decision about what plan is best for you.

WHAT DO YOU KNOW? TRUE or FALSE (the answers can be found below)

• ·        An individual 65 years or older has a 40% lifetime chance of needing LTC
• ·        An individual 80 years or older has a 70% lifetime chance of needing LTC
• ·        Most LTC is provided in a nursing home
• ·        Expenses for individuals with Alzheimer’s are covered by Medicare
• ·        The average annual cost of nursing home care in Rochester is approximately $126,000
• ·        1/3 of primary caregivers provide 30 or more hours of care per week
• ·        65% of caregivers miss work, lose their jobs or change career paths
• ·        46% of caregivers feel a negative impact on their family life and health

According to Genworth’s  A Way Forward: Highlights from Beyond Dollars 2013, the impact of caregiving extends “far beyond dollars”. Genworth’s research shows  “caregivers report that long-term care events affected their finances, careers, lifestyles, health, relationships and state of mind”.

Aging and illness are a part of life.  Every day makes you one day older. Illness is unpredictable. The only way to lessen the impact of these two natural events is to properly plan for their inherent inevitability.

Now there’s the task of sorting through the myriad of strategies that are available to you.  Following are guidelines that can assist you.

A standalone LTCI policy may be the right choice if you:

• ·        Have experienced a LTC situation and understand the impact on family and friends
• ·        Have a family history of Alzheimer’s
• ·        Want robust benefits that include inflation protection
• ·        Want greater asset protection; NYS Partnership plans offer total and partial asset protection
• ·        Want tax write-offs; there is a 20% tax credit on LTCI premiums in NYS
• ·        Are a business owner who can either write the premiums off as a medical expense or use pre-tax dollars through an HSA

A hybrid or linked-benefit policy (life insurance policy with LTC rider) may be the right choice if you:

• ·        Have never experienced a LTC event and feel the risk is not that great
• ·        Have a family history with no major illnesses
• ·        Are concerned about paying premiums for a policy that you might never use
• ·        Have liquid assets available that make it easier to self-insure for part of the risk
• ·        Have liquid assets available to pay a single premium to initiate a policy
• ·        Currently have a life insurance policy with cash build-up; you can exchange it without any tax consequences for a hybrid
• ·        Are not concerned about robust benefits and inflation protection

A life insurance policy with a chronic illness rider may be the right choice if you:

·        Have health conditions that render you uninsurable for a standalone LTCI policy or hybrid

Legal planning, a life settlement or reverse mortgage may be the right choice if you are uninsurable for all the strategies listed above. You might opt for an irrevocable trust as a means of Medicaid planning.  If you are 65 years or older, a life settlement is a way to sell a life insurance policy that is no longer needed for its original purpose to a third party. You will receive an amount less than the death benefit but more than the cash value to pay for LTC expenses. A reverse mortgage will give you funds to pay for LTC using the equity in your home.

The impact and consequences of a long-term care illness can have a profound effect on a family, especially the primary caregiver. My challenge to you is to confront the risk, talk about it and use one of the strategies above to plan for it.

Answers: True, True, False, False, True, True, True, True

THE CONVERSATION

Inevitably, long-term care (LTC) is becoming a rite of passage for our parents and us due to the fact that we are living longer. I’m sure many of you are already taking care of your parents or a spouse or seeing your friends and family members assuming the role of primary caregiver.

Having taken care of both my parents for over 7 years, I know that nothing stays the same. Tragic health events occur without warning. You cannot change what happens but you can be better prepared.

That being said, having a plan for LTC is a necessity. Having “the conversation” to create and put that plan into effect is the pre-requisite. What exactly is “the conversation”? How do you start it? What should be discussed?

The conversation will be different depending upon who you are talking to.

Often times, your parents are very reluctant to divulge information pertaining to their finances.  You may not know how much money they have put aside to take care of themselves should an illness occur. They may not want to appear dependent in your eyes. They have always taken care of you. Role reversal is hard for them to come to terms with because it validates the fact that they are aging.

The one thing to bear in mind, and I found this to be true with my own parents, is that they do not want to be a burden to you.  If you take the approach that you need to know certain information because it will make things easier for you in the future, they tend to be more open to discussion.

To get the conversation going, ask them open-ended questions and listen to their answers. Start by citing a LTC situation experienced by a friend or family member. Get their reaction to it. Have they thought about how they would like to be cared for should they become ill? The more empathy and interest you show, the more likely they will recognize that your concerns are genuine and that you will do your best to fulfill their wishes. By actively listening, you can learn what is important to them which may be very different from what you thought.

These types of conversations with parents are generally fluid and continue over time. You will not learn everything you need to know in one sitting. It took me three years to get my mother to the point of feeling comfortable enough to tell me how she wanted to be taken care of and where.  The idea of moving out of her apartment that she lived in for 54 years was frightening.  But as her health changed and friends started becoming ill, she was able to think more clearly about what was in her best interest and relay that information to me.

When talking to your parents, don’t come armed with brochures on assisted living facilities that you think they would enjoy moving into. Don’t become authoritative or get tangled up in hurtful language. Most importantly, don’t treat them like children. Even though you want to keep them safe, you must treat them with respect.

Part of the conversation should focus on a Power of Attorney, Heath Care Proxy and Living Will. By definition, a Power of Attorney (POA) is a written authorization to represent or act on another's behalf in private affairs, business, or some other legal matter. It is the most necessary document to have in place. The Health Care Proxy will allow you to make health care decisions for your parents. The Living Will defines what type of medical care they would like to receive.

The LTC conversation is easier with a spouse/partner. A level of intimacy already exists regarding finances and personal preferences.  Many of you will want to plan for this risk because you do not want to be a burden to your children or each other. By doing so, you will lessen the emotional, social and financial consequences of a LTC illness on your family. Your planning choices might depend upon where your children live; how a LTC illness would affect your retirement portfolio and the standard of living of the well spouse/partner.  The same three documents described above also need to be in place.  It may be helpful to receive advice from your attorney, financial advisor and LTC planning specialist.

Without a doubt, talking about LTC is very difficult. Families experience many ups and downs but illness by far is the hardest and scariest event to deal with. You cannot be in denial about LTC. It’s part of life, a part of aging or illness. Take a deep breath and say what you want and need to say. Only good will come of it.

Findings and Trends in the Long-Term Care Insurance Industry

Findings and Trends in the Long-Term Care Insurance Industry

According to information gathered by the American Association for Long-Term Care Insurance (AALTCI) in their 2012 LTCi Sourcebook and what occurred in 2013, the LTCi industry continues to evolve and certain buying trends have become apparent.

We’re seeing internal rate increases for new buyers based upon gender based pricing and claims history, rate increases for existing policyholders, the elimination of certain benefits and features; decreases in discounts and stricter underwriting requirements.

This was bound to happen due to the existing economic and regulatory climate.  Interest rates are remaining low. The anticipated 5% policy lapse ratio is actually 1-1.5%. Policyholders are holding onto their policies. They see the value in having the coverage. The top 10 carriers paid $10.8 million in claims per day in 2011. In order for LTCi companies to remain solvent and live up to their obligations, change had to occur.

Last year, the change with the most impact was gender-based pricing. Women live longer, are on claim longer, therefore they will pay more for coverage. The premium increases have been 20% or more depending upon the state. Several states, however, have opted not to approve this trend citing discrimination. Lawsuits are pending.

The questions asked most often by prospective clients are when is the right time to buy and how should the features be designed? 

The average buyer’s age has changed dramatically. Twenty years ago, the average buyer was 70 years old. Today, approximately 56.5% of buyers are between the ages of 55 and 64; 22% are 45 to 54 and 18% are 65 and over. It seems that more individuals are planning for LTC prior to retirement when the premiums are lower and insurability is higher.

According to the 2012 LTCi Sourcebook, approximately 46.5% of couples bought policies together versus 21.5% of sales for singles. Perhaps due to cost or insurability, 32% of sales were for one spouse.

On the national level, the average daily benefit selected was between $150-199, the average length of coverage was 3 years, and the average elimination period was 90 to 100 days. In terms of inflation, 5% compound was chosen more often with 3% compound as the second most popular choice. Very few individuals purchase CPI based inflation or Future Purchase Options.

According to a 5 year study conducted by John Hancock on costs of care, nursing homes averaged a 3.5% increase, assisted living 3.4% and home care 1.5%. Depending upon  age, selecting 3.5% inflation could stay in line with future costs and save premium dollars especially if a higher daily benefit is initially selected to compensate for the lower inflation protection.

In CNY, the average cost of nursing home care is $350 so the selected daily benefit would be higher than the national norm. In NYS, the Partnership plans have a minimum daily benefit of $274 for 2014 as well as mandated coverage periods and inflation options.

The LTCi companies have gathered extensive claim statistics over the last 35 years. According to the LTCi Sourcebook, 50% of newly opened claims are paid for home care; 19% for assisted living and 31% for nursing home care. 65.5% of claims start at age 80 or older; 24.1% at ages 70 to 79; and 8.4% at ages 60-69.

As far as marketing trends, we are seeing more policies with alternative cash benefits and more hybrid policies (life insurance with LTC or chronic illness riders)

Cash alternative benefits add flexibility at claim time. It allows policyholders to pay for informal care from friends and neighbors who generally cost less thereby extending the life of the policy. This feature also takes into consideration future caregiving options.

The hybrid policies allow for the acceleration of the death benefit to pay for LTC expenses. Those with LTC riders generally require a single premium and two sets of underwriting. Many of the features in the LTC rider are as robust as a standalone LTCi policy. The hybrids with chronic illness riders are a good alternative for individuals who are uninsurable for LTCi because only life underwriting is required. Hybrid policies are appealing because there are no wasted premiums.

More than ever before, individuals have the ability to tailor their LTC plan for affordability and value. Perfect policies don’t exist but the LTCi carriers are offering more appropriate and realistic choices based on statistical information.

Susan Suben, MS, CSA, is President of Long Term Care Associates, Inc. and a consultant for Canandaigua National Bank & Trust Company.  Information for this article was gathered from the AALTC 2012 Sourcebook and ICB 2013 Webinar on LTC Trends. She can be reached at 800-422-2655 or by email at susansuben@31greenbush.com. 

 INSURANCE CHECKLIST FOR 2014

Insurance is purchased for many reasons. The primary one is to transfer risk. Life insurance provides a tax-free death benefit to heirs to pay off debt or replace lost income. Disability insurance is designed to replace lost income in the event of an accident or illness. Long-term care insurance helps pay for services and settings when a long-term illness occurs. If you acquired any of these products as part of your financial or retirement plan, it’s important to review the features periodically to determine if your original need for the coverage still exists and if the product is performing the way you expected it to. Following are some questions that will help you review your coverage.

Life Insurance

1. What type of life insurance do you own? Is it term or permanent (universal or whole Life) insurance?

2. What is your death benefit?

3. If you have a whole life policy, what is your cash surrender value?

4. What is your premium? How long is it guaranteed for?

5. Are your beneficiaries up to date?

6. Have you paid off the debt or fulfilled the obligations you originally purchased the coverage for? Your life circumstances may have changed and you may no longer need the coverage.

7. Would it be practical to exchange your current life policy for a life insurance policy with long-term care or chronic illness rider through a 1035 exchange as allowed through the Pension Protection Act?

8. If you have a life insurance policy with cash value, do you know that you can use some of that cash value to pay for a long-term care insurance premium tax-free?

Long-Term Care Insurance

1. Do you own a partnership or non-partnership plan? A partnership plan would provide total or partial asset protection in NYS if you exhaust your benefits and still need care. Once you exhaust your benefits, you are also able to apply for Medicaid without any look-back period for gifting.

2. If you have a non-partnership plan, is it based on a reimbursement or cash/indemnity payment model? A reimbursement plan would pay up to your daily/monthly benefit for actual expenses while a cash/indemnity plan would pay your full benefit regardless of the actual cost of care.

3. Do you have inflation protection? If so, how has your daily/monthly benefit grown?

4. Is your daily/monthly benefit keeping pace with the cost of care in your area? Do you need to supplement your benefit?

5. What are the triggers to receive benefits? Some older policies require you to be unable to perform 2 out of 5 activities of daily living as opposed to 2 out of 6 for the newer plans. Bathing was often missing as a trigger.

6. Does your home care benefit allow you to use independent caregivers or unskilled/unlicensed caregivers as opposed to only an agency?

7. Did you assign a third party to receive notification if you forget to pay your premium? Countless policies lapse because a premium has not been paid.

8. Are you aware that there is a 20% NYS tax credit on your premium if your policy is tax-qualified? Since 1997, most long-term care insurance policies are tax-qualified.

Disability Insurance

1. Do you have short-term or long-term disability?

2. Does the policy provide own occupation protection? Own occupation protection means that you have to be unable to perform the duties of your occupation as opposed to a policy that guarantees to pay benefits if you are unable to work at all.

3. What is you maximum monthly benefit?

4. Can you increase your benefit?

5. Are your benefits adjusted for inflation?

6. How long will your benefit be paid?

7. How is your disability determined?

8. How long do you have to wait to receive benefits?

9. Is the policy guaranteed renewable? Your policy will stay in force but the premiums may increase.

10. Can you receive partial benefits if you go back to work part-time?

11. What are the exclusions?

Insurance provides protection for you and your family against certain risks. However, needs and goals change and consequently so does your risk exposure. You should review your insurance policies at least every three to five years to make certain you understand your coverage and if it has retained its value. Set a goal to meet with your insurance agent in 2014.

Susan Suben, MS, CSA, is President of Long Term Care Associates, Inc. and Elder Care Planning. She can be reached at 800-422-2655 or by email at susansuben@31greenbush.com.