Today I want to continue our conversation in the series regarding insurance. Previously we talked about the basics of insurance.
We talked about medical insurance and how it’s protection really against bankruptcy. We talked about homeowners and renters’ insurance in that you’re protecting your largest asset. We talked about auto insurance, about how state minimums are not enough and the amount of coverage you should have. We then talked about disability insurance, about protecting future income and wages should you become disabled.
Last week we talked about life insurance and providing for those that you love and that are financially dependent upon you should something happen to you.
Today, I want to continue our conversation on insurance, specifically talking about long term care insurance. I want to talk about its purpose, the situation where it might be desired, really what it protects, and why and where you might need it purchase a policy.
So, what exactly is long term care? insurance for its primary purpose is to provide care really facilities care near or at the end of life. Sometimes people think long term care is associated with medical health, but really there’s a distinction to be made. One of them is for medical care health reasons, and the other one is for the facilities that provide really housing for you and care for you when you can’t take care of yourself.
Think about it as if you’ve ever been to a situation where you’ve had a birth or maybe a surgery where you stayed in a hospital and you end up getting multiple bills, you’re going to get bills from the doctors that provided care for you. And additionally, you’re going to get a bill from the hospital that provided a facility for you.
Well, long term care doesn’t take care of, the medical reasons, the health purposes, it really takes care of the facilities, the place that you stay, the bedding, the care, the things that take place in your life that take care of yourself and function at later stages of life.
It’s essentially nursing home insurance is what it is. And the reason why you might have insurance for it is because nursing home coverage is expensive. The National Council of Aging cited a 2021 Genworth care survey that cited the median cost of a nursing home in the United States for a shared room is just under 8, 000 really 7908 for a month for patients.
A shared room and a little over 9, 000 for a private room, 9, 034 is the meeting cost. That means the average cost in a nursing home is about 300 a night. That’s like a four- or five-star hotel in a major city. And so those costs can obviously pile up very quickly. 99, 000. a month essentially is 100, just under 110, 000 a year.
So, the cost of care for long-term care can be very, very pricey. So, when might a person consider the idea of, having long term care insurance. Really? There are two general reasons. Number one is if they want a certain level of care, a quality of the facilities, but they don’t have the assets to support it. So, if you don’t have the money to buy into the nursing home, you might utilize long term care insurance and able to get in or access and pay for a higher quality of care facility.
Okay. The other one that’s typical, whereas you’re, where you’re trying to not consume all the assets, the nest egg that a couple has built up as the second person is dependent upon those assets when the first person passes away. So typical scenario is, Husband and wife pops, gets six, goes into the nursing home, basically cracks, and scrambles the nest egg.
And then mom is left destitute because all the wealth that they have built is gone. And most people would think that maybe Medicare would cover things, but Medicare really doesn’t cover long-term care beyond the skilled nursing care that immediately follows a hospitalization. And even then, you’re limited.
To a certain period of days.
We’ll do a deep dive on Medicare in the future, but Medicare doesn’t really cover long term care Now there is a thing called Medicaid and Medicaid does provide for nursing home or long-term care but it’s essentially a welfare entitlement program to pay for care for those that don’t have it so again going back to those two scenarios where you might have life insurances.
If you’re going to live on Medicaid, you’re going to get state funded facilities, nothing wrong with that, but just keep that in mind. Its state runs government funded, right? So, think. Government cheese, government housing, right? Government medical care, generally not things that the average person lives off consider scenario two where husband and wife go in.
Right? So again, Medicaid will only kick in after the assets are spent. So, you must spend down your assets on the primary person first before Medicaid kicks in. kicks in, again, leaving the second spouse in a vulnerable position for just living expenses thereafter. So again, those are the two general scenarios where you might consider the idea of having long term care insurance.
But it is pricey. And the longer you wait to get it, the pricier it gets. So, it’s not cheap. And so that’s why I like people don’t have it. So, it’s, it’s very much a trade off because the idea is, you know, I’m 46. If I get ready to get long-term care insurance today, my life expectancy, according to the Social Security Administration at this point is 82, I think.
82 years old. So, if I get it now, and I never go into a nursing home, I just one day have a heart attack or, you know, get in an accident, and die, then I essentially have paid a lot of money for insurance that we never use. And all those premiums could be invested and saved and things like that. Conversely, if we get to the end of life, near the end of life, and I must go in a nursing home for a decade, I very much can undo a lot of the wealth that we’ve built.
So, it’s kind of this checks and balances type of scenario. For those that are considering the idea of getting insurance, normally what you’d explore having is somewhere between three to five years of coverage, where the daily benefit It will cover the cost of the daily stay. So, you’re looking about 300 a day, but you must remember that’s 300 today.
Inflation will drive that up in the future. So, you want three to five years’ worth of coverage with inflationary protection against the daily benefit. Why three to five years? Generally, the stay in a nursing home for most people is less than five years. Really less than three years. The situations where it is not going to be more all timers you know, mental dementia, things like that, where your mind kind of goes and you can’t take care of yourself, but you, your body is still, is still relatively healthy.
So. To qualify and utilize this long-term care insurance, you must not be able to do two of six annual daily living activities for a period of 90 days. That essentially is like the elimination period. So again, if you think of deductibles with health and auto. We talked about an elimination period with disability because you don’t really pay for deductible with disability insurance.
It’s more paid with time. Very similar here. You must not be able to do Two of six, what’s called ADLs, Active Daily Living events for a period of 90 days. Those include bathing, eating, dressing, toileting transferring, kind of like getting from a bed to a chair or a chair to the bathrooms, things like that, kind of move back forth, and continence, kind of withholding your bowels, if you will.
And so, if you can’t do two of those six events or activities for a 90-day period, that’s when you become officially in need of long-term care. That might happen just, you know, for a brief period because you might have an accident, you might have a surgery, might have to recover, and you can’t do those things for a period.
But for a prolonged period, that’s when you would need long term care. So, the question is then where to get it? Well, Really, most like, like most insurance, there’s going to be two different ways. One is going to be with a captive or a general agent, a person who represents a company, an insurance company that sells long term care policies.
The other one would be a broker, which would shop amongst various companies and try to get, you a best deal. I do know that there’s not as many players, insurance companies in this realm, just because of the nature of it, the cost of it the supply and demand of it. But again, it could play a valuable part in a long-term plan.
And that’s the key pieces. We talked about estate planning previously, really this type of need, this type of coverage, this type of insurance should really be considered. with the other options in a larger comprehensive plan. Some people say, I’m going to self-fund it. I’m going to have enough money set aside to, you know, pay for it.
Other people recognize there’s house equity that they could potentially use to cover it. Some people sell their houses, you know, people will sell their houses and use that to buy into what’s called a CCRC. I think it’s called. It’s called a continuing care retirement center where you kind of buy into this place and it’s like kind of like a continuous of life stage where you move in independent life and then assistant life and then memory care and medical and they end up kind of a nursing home type of place where you buy in, and you pay a monthly kind of rent if you will.
That’s an option there. So, a handful of things to consider here. But it, makes for a tough situation because people need care and it’s expensive, right? Like medical health facilities, these things are expensive. And so, you want to consider this in a longer, larger. Aspect of a plan. And so that is your micro action for the week.
Think about and maybe explore alone or with your spouse the different options that you might have or consider having when it comes to long term care. So today we talked about long-term care insurance, specifically its purpose, the situations where you might have it, the needs for it as it covers health care facilities, and later stages of life and where to purchase it from.
So, if this helps you on your financial journey, if you have any questions or comments, you can leave them below or send an email to Mike@truewealth.show. And until next time, I hope you have a great day.
