The second guest article this week was sent in by Ben at Money Smart Life. He addresses a growing concern for our generation and our aging parents. Long term care insurance may be something to start thinking about over the next few years for our parents.
How much thought have you given to the topic of caring for your aging parents? Before you read any further, take this quiz about long term care from John Hancock. A poor score prompted me to talk the subject over with my in-laws during a recent visit. They have already purchased long term care and shared a few key points with me.
Who Needs Long Term Care?
The first thing I learned was some advisors don’t recommend long term care insurance for everyone. One school of thought says if a couple has a significant estate then long term care insurance is a good idea. This is because Medicare only kicks in once people have pretty much depleted their assets. If your parents were to need costly care the long term care insurance would cover the majority of expenses without eating through your inheritance. If your parents don’t have many assets to protect, then this group of advisors says don’t buy the insurance, just use Medicare.
Another way to look at the above approach is that if they don’t have an estate they may need long term care insurance even more. Putting my parents care in the hands of a government program that’s financially unstable seems rather risky. If they can’t afford to pay for long term care insurance that’s one thing but if they can I’d be inclined to encourage them to opt for the insurance even with no assets
Reviewing the Options
As with any type of insurance there are many different options depending on what type and extent of coverage your parents want. One of the major decisions is whether they’ll be covered to go to a nursing home or whether they’ll opt for cheaper in home care.
Another major question is the length of the policy coverage. Statistically, a majority of people do not live longer than four years after entering into long term care. Due to this one common option is a policy that covers four years of long term care. An alternative choice is to pay higher premiums but have the long term care insurance last for life.
Many long term care policies have optional writers that allow for additional coverage. One example is a “Survivorship Writer” where a person no longer has to pay premiums if their spouse enters into long term care. Another example is a “Cost of Living Benefit Writer” that increases the amount of coverage a certain percentage each year to account for inflation.
Coverage and Eligibility
Your parents won’t be able to decide for themselves if and when they need long term care. The insurance policy will likely state they must be unable to perform a certain percentage of the activities of daily living before they are eligible for long term care. Often times once they qualify, they won’t be covered right away. Check the policy. They may have to fund around 90 days of care themselves before the insurance coverage kicks in.
Start the Conversation
Choosing whether and what types of long term care insurance your parents want or need is a difficult decision and one that you should bring up with them if you haven’t already. The American Association of Retired People publishes a biannual report on the trends of long term care that may be of assistance as you research and discuss this unfortunate but necessary topic.
Courtesy of: Money Smart Life
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.