If you never experience chronic illness or an accident resulting in extended care, you won’t need long-term care insurance (LTCI). But, if either were to happen to you today, a nursing home in Hawai‘I could cost you $100,000 – $120,000/year and could last up to 3 years. People age 65 and older with Alzheimer’s survive an average of 4 to 8 years after diagnosis. If you have to use money you were earmarking to retire on to pay for care in a facility or at home, where does it leave your family’s financial future? If you don’t have money or run out of money, you will be dependent on children to be your caregivers or plan on an extended stay at a Medicaid eligible care home not of your own choice. Either way, it’s not pretty picture. On the other hand, LTCI transfers the cost of paid care providers from yourself to an insurance company for a fraction of the actual cost and it offers you choices.
What are my chances of needing some form of LTCI?
The chances of needing LTCI are high. The Department of Health estimates 7 in 10 people will need some form of LTCI. If it happens to you, odds don’t matter.
What is the current cost of LTCI in Hawai‘i? What is the projection in 10 – 20 years?
The current cost of a nursing home stay in Hawai‘i is approximately $100,000 – $120,000 per year. Assuming a 5% annual rise in the cost of care, the cost in 10 years would be $162,800 – $195,500 per year. In 20 years the cost would be $265,300 – $318,400 per year.
Why are premiums expensive? Can you compare dollar for dollar versus cents on the dollar?
Assuming an LTCI policy offered to Federal Employees, a 50 year old may be paying an LTCI annual premium of $3,000. For this money, the insurance company promises to pay up to $328,500 towards the cost of care. The choice is simple, $3,000/year to the insurance company or $328,500 out of pocket for the cost of care. If the insured paid premiums for 25 years, the combined cost over time would be $75,000. For this money, the insurance company’s 5% inflation rider would grow the promise to pay up to $1,112,400. Like health insurance, LTCI premiums are subject to increases in the future. However, my experience with LTCI premium increases over the past 25 years is that paying for LTCI is still pennies on the dollar compared to paying for care out-of-pocket.
Is it realistic today for my kids to take care of me?
For many, depending on the kids to be caretakers, is not realistic. Studies show that 59% of unpaid caregivers are currently employed, 70% are married, and 62% are women. Long-term caregiving is hard work; there are consequences physically, psychologically, economically and relationally.
How do I keep my LTCI premiums affordable?
Interestingly, it is possible to design a plan that is affordable to many people. Making LTCI affordable is made possible by considering plan type (traditional or hybrid), plan design and creative planning for premium funding.
Michael W. K. Yee at (808) 952-1222 ext. 1240
Michael W K Yee, CFP®, CFS®, CRPC®, is a Financial Advisor and CERTIFIED FINANCIAL PLANNER practitioner™ with Ameriprise Financial Services, Inc. in Honolulu, HI. He specializes in fee-based financial planning and asset management strategies and has been in practice for 25 years. To contact him, firstname.lastname@example.org, 808.952.1222 ext 1240, 1585 Kapiolani Blvd., Suite 1100 Honolulu, Hawai‘i 96814.
Advisor is licensed/registered to do business with U.S. residents only in the states of Honolulu, Hawai‘i.
1 The Money Across Generations IISM study was commissioned by Ameriprise Financial, Inc. and conducted by telephone by GfK in December 2011 among 1,006 affluent baby boomers (those with $100,000 or more in investable assets); 300 parents of baby boomers; and 300 children of baby boomers at least 18 years old. The margin of error is +/- three percentage points for the affluent boomers segment and +/- six percentage points for the parents and children of boomers segments.
2 United States Department of Labor, Wage and Hour Division, Family and Medical Leave Act http://www.dol.gov/whd/fmla/
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