Do I Need Long-Term Care Insurance and How Much Does it Cost?

November 20, 2023 – On this week's edition of Lifetime Planning, Aaron Wiegman and Crystal Colbert discuss the basics of long-term care as well as the three main methods of how to pay for it, whether self-funding, traditional insurance, or a hybrid policy. Aaron and Crystal also look at costs, how much that can be affected by where you live, and many of the most important questions and concerns that come up when putting together a long-term care plan.

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Aaron Wiegman: Welcome everybody to today's lifetime planning episode. It is I Aaron Wiegman along with Crystal Colbert. One of the things that we're going to be bringing up today and talking about is a little bit about long term care, long term care planning, long term care insurance. It's something that we've been having a lot more conversations recently about. And so we thought it might be appropriate for us to at least talk through the basics of long term care and what it all involves. What are the ways that you wind up planning for it? The types of policies, types of things that are out there so that it can educate you as the potential client person who's putting that into practice, the things to look out for, pitfalls, et cetera. Crystal, thanks for joining me.

Crystal Colbert: Thanks for having me. I think it's a really important topic because like you said, it's been coming up a lot in our plans and conversations about long term care in general and kind of the misconceptions. So I think this is a great topic. I think one of the first things we should address is just what is long term care?

Aaron Wiegman: Sure. So long term care is the care that you need when you're no longer able to care for yourself independently. So what does that all involve? So you wind up talking about long term care just in general. And if you're going to be applying for some of these policies that are out there, they wind up referring to that as the six activities of daily living, bathing, dressing, transferring, eating, toileting, continents.

Aaron Wiegman: Basically like the first half an hour of your day as you consider all the things that you have to do to get ready for yourself. Right. And then outside of that, that would be cognitive impairment. So if it was Alzheimer's or some sort of memory care that you needed help with on a regular basis, that would be another way that people wind up qualifying for these long term care policies and needing extra help. So the other thing is that there's different levels of care, so different people might need different in home type of things that are taken care of, covered. So you have home health care, maybe it's a home health aid that winds up coming in a few hours of a day. Or there's assisted living where you don't necessarily need constant nursing care or anything like that, but you need to have some access to assisted living. And then of course there's nursing home care or skilled care that's a little bit more hands on as far as the costs and as far as the care that you're receiving yourself. So there's multiple aspects of this, but as you're trying to come up with some sort of a game plan, make sure that your game plan would cover any number of these things. So you have options, I guess.

Crystal Colbert: Exactly. And I feel like a lot of times people don't really think about that they'll need long term care or they just kind of don't address the issue. But who do you think truly needs it or should start to think about this kind of stuff?

Aaron Wiegman: Well, it's one of those things when you talk about the people who think that they need it or don't think that they needed, a lot of that kind of comes down to what their family history has been. So I mean, even if you wind up looking at my family history so on my dad's side, neither of his parents really needed to do that. Neither of my grandparents really needed it. But on my mom's side, there was between my grandfather and my grandmother, there was years of skilled nursing care that they both needed and they had to use their assets for. So it's one of those cases like some of them need them, some of them don't. But there is when you wind up looking at the numbers, statistics, the studies, you wind up looking at studies that say like up to 70% of people are going to need some form of care, whether that be some home care, skilled care, assisted living at some point in their life. But that's going to mean different things to different people. So you look at the average claim that people have, it might be depending on the study, you say, okay, it's about three years. But then you look at men, their average claim is about 2.2 years and women is 3.7 years. But does anyone actually average the averages of three years?

Aaron Wiegman: Well, you look at it and you say, well, 48% of claims are for less than a year and only 21% of claims are right in that two to five year range. And then more than five years, it's about 14% of claims. So it could be one of those things where if you're planning for that three year policy or something like that, it could be good or bad, it could be bad both ways. Either overpaying for that or you're underpaying for it. So you kind of have to take some of that into consideration because when you wind up looking at some of that stuff, if you look at family history of someone who has Alzheimer's, that could be eight to ten years of needing some sort of help or more.

Aaron Wiegman: So it really just kind of depends on the situation.

Crystal Colbert: Absolutely. Because Alzheimer's is one of those that people just forget about because you can be completely healthy physically, but then mentally you're declining, you're probably going to spend a lot more time in those facilities and those costs add up so quickly. And I think it's important to really address what those costs look like because depending on your situation, it could be very expensive. So it's important to account for that. So is there any estimated costs as to what that kind of looks like for individuals?

Crystal Colbert: Depending on what kind of care they get. So what's the difference between in home assisted living and private?

Aaron Wiegman: Sure. So you look at that and this is kind of based off of Genworth, who's a long term care provider for many years. They did this study back in 2021. They update this every so often. But they were looking at in home care.

Aaron Wiegman: And in home care ran on average about $27 an hour. So however many hours it is that you need care, that's $27. That's average nationally. But you look at that swing of things, that could be $19 an hour in West Virginia or $36 an hour in Minnesota, right. Assisted living nationally it's about $54,000 a year.

Aaron Wiegman: But that could mean $3,000 a month in Missouri or $7,000 a month in Washington, DC. You look at a private room in a nursing home nationally, maybe that's around $108,000. But that could mean this is the biggest difference. I've seen this $378,000 a year in Alaska and $71,000 a year in Missouri. So that's a wide range of, depending on where you are, what those costs could be.

Aaron Wiegman: And you wind up thinking about it. And a lot of it is location. So you think about some of the places maybe the cost of if you're doing that next to the beach in California, the cost of real estate there is going to be much more expensive, right. But that might be it might be offset because a lot of healthcare workers want to live there. So then you look at somewhere like Alaska, the cost of getting healthcare workers out there.

Aaron Wiegman: I think that's probably the biggest influence on that cost of care in some of those remote locations. And then you wind up looking at it simply as like a supply demand kind of a thing, depending on where you are and the demographics of the population. Some places it's just going to be simply hard to be putting a new long term care facility in the middle of some metropolitan area. So you wind up having to go that much further out to go ahead and get the facilities that are required for the demographics of the area. So you have to kind of look at the cost of that and realize what the costs are in your area as opposed to just applying some sort of national number that's out there.

Crystal Colbert: Exactly. And I don't think that people are aware as much of how expensive it truly is. And certain clients that we've worked with that have had family that have been in long term care facilities, they're the ones that are a little bit more proactive when wanting to look into options for long term care because they realize just how much the cost of that care really is. So I think it's important to address because it is very expensive and just the cost of inflation when it comes to health care is even higher or just significantly.

Aaron Wiegman: However you wind up addressing it, it's just a matter of having a plan in place. And so that places a big burden on families and the retirement savings that someone has in their pocket. And whatever the affected goals are, if you're planning on giving that money to the next generation, how do you wind up weighing some of those aspects of these things?

Crystal Colbert: So what kind of public programs are available if you need long term care?

Aaron Wiegman: So that's one of the biggest questions you wind up having is doesn't doesn't Medicare pay for this stuff? Doesn't Medicaid pay for this stuff? So you have to look at that and say, what does Medicare actually pay for? So generally, Medicare is only going to cover skilled nursing care. After a hospital stay of at least three days, your coverage is going to be a maximum of 100 days.

Aaron Wiegman: But when you look at Medicare, that's not for chronic care. So in order to have Medicare pay for skilled nursing care, you have to be getting better. And so if it's going to be actual chronic care, you're not necessarily getting better. So Medicare is not going to be the place that's going to help you pay for this kind of care. Right.

Aaron Wiegman: And same thing with Medicaid. Medicaid, it's going to contribute for long term care costs for people who have little to no income or assets, right. So different facilities are going to be available to you if you qualify for Medicaid as opposed to having the dollars that are coming from a policy or out of some sort of assets yourself. So different levels of care too, I've heard the question of how do I qualify for Medicaid? And the question kind of has to come down to do you really want to?

Aaron Wiegman: Because if you have the means and the ability to go ahead and pay for quality care, you probably want to be able to put a plan in place to be able to do that.

Crystal Colbert: So what about for the people who are like, okay, well, I have family that can take care of me?

Aaron Wiegman: Sure. I mean, there's studies about this kind of stuff as well. And initially families say, well, I've got family. They're going to go ahead and take care of me. But I guess as you wind up having these conversations, does your family have the time, the resources to be able to do something like this in the long term?

Aaron Wiegman: Right. And what kind of a burden is that going to be on them? Of course family wants to be able to help out, but is that something that long term they're going to be able to do and take away from their own family and their own careers to be able to help you out? And I mean, are they trained to actually give the care that's needed for you on a regular basis? And is that something that you really want to ask of them?

Aaron Wiegman: So of course they're going to be around. But it might be nice to be able to have those skilled care workers to be able to help out on a regular basis and not necessarily create any sort of weird family dynamics in that kind of a situation, because those are going to be difficult conversations already. And having to put that burden on the family members, that's certainly something the family can figure out. But it's a dicey conversation to have, I guess.

Crystal Colbert: Yeah. And I've definitely seen where especially people who are taking care of their parents, a lot of those individuals usually feel like they deserve more, and it can cause some family issues, especially if something were to happen to the parents and they pass away. The last thing you want them fighting over is money or just that situation. And then breaking up the family. So it is really important to talk with your family, especially if that is the direction you're wanting to go and making sure you have that conversation, making sure that they're ready and know what they're doing and want to do it.

Aaron Wiegman: And probably have that conversation way before you need care. Right. So when you think through the family dynamics, this is something that as someone who has older parents or having those conversations early, and if you have parents who are in that range that proactively have those conversations with them and they have those conversations with you as the kids, so highly recommend that.

Crystal Colbert: So if I didn't want to, what are my options when it comes to long term care? What should I start planning for?

Aaron Wiegman: So, I mean, the natural thing, you don't wind up doing anything specific with any sort of like insurance policies or anything like that. I mean, you can always self fund this stuff, right. But I guess it's a matter of just kind of saying, okay, which assets do we want to set aside in order to self fund something like that? So if I'm looking at something that in today's dollars is going to be call it $100,000, $150,000 a year for the cost of care, what are the assets that my children or my trustee or whomever it is are going to have to sell in order to pay for said care? Right.

Aaron Wiegman: So that might be here's my retirement assets, here's my investment assets. Maybe it winds up being here's my home, I'm going to sell my home at that point in time to pay for care. We've had some clients that have paid wanting to get into a long term care facility and that winds up kind of being like, here's the cost of my home. I can put that down into a down payment for this long term care facility and that's how I wind up funding my care. Right, and I guess you wind up and go back and if it's not going to be assets, then we wind up saying, well, maybe it makes sense for me to somehow lever a portion of my assets and put that into some sort of an insurance policy.

Aaron Wiegman: And so I guess these days there's some different ways you can wind up doing that. There's always the long term care that winds up being the traditional long term care that might have a little bit of a black eye to it because when it first came out 30 ish years ago, they didn't necessarily have the experience kind of like nailed down. And so you've seen a lot of companies pull out of having traditional long term care. So there's not too many companies that are really doing that and doing that well. But some of those have changed their policies and doing that.

Aaron Wiegman: But that also means for higher premiums because they know that people who are getting these policies are keeping them. And so that traditional long term care policy says here quite simply, I'm going to pay for a premium and it's going to give me a certain dollar per day and for how long it's going to be there. And it's not necessarily going to be any money back for me, but it's going to be that traditional insured kind of a risk, right? I pay a premium. If I do have that risk kind of come into play, it's going to pay out.

Aaron Wiegman: If it does not, those might be dollars lost to me. But then I guess the insurance companies have gotten a little bit smarter with that and they've kind of created some different policies that say, well, depending on what you want for your benefits, you can have these hybrid long term care policies. And those hybrid long term care policies might be built on either a life insurance chassis or some sort of annuity chassis. And so what they wind up doing is they say, all right, one of three ways however you want to lever this up, if you want more cash back potentially in the future, there might be lesser of a long term care benefit. If you want more of a long term care benefit, there might be lesser available cash back in the future.

Aaron Wiegman: So you wind up looking at those hybrid long term care policies. They will do one of three things. If there is a long term care need, that long term care need would be levered up and you can use that policy for those long term care issues. And that could be either with any of these policies there's kind of the actually we can get into that in a little bit, but one of three things winds up happening with these hybrid policies. You either have it for the long term care event or it winds up passing on to your beneficiaries if you don't have a long term care event, right?

Aaron Wiegman: So it's not as though it's like money lost to you compared to some of your growth investments, maybe a terrible investment if you're trying to do that. But you're not doing this for the investment aspect. Right. But you can actually get some of that money back, if not all of it, depending on how you wind up structuring the policy or there's just a life insurance policy. Some people wind up using this and just here's a replacement of the monies that are used for long term care.

Aaron Wiegman: I can do that with just your standard life insurance policy or some new policies. Actually have a long term care rider on that. That doesn't even cost you really any money, but that allows you if you do have some sort of a long term care need, you can access the death benefit early to use it for some sort of long term care need or issue that you wind up having. So that's kind of a flexible way. If you do have some sort of life insurance policy just for traditional death benefit needs, you can still access that for long term care.

Aaron Wiegman: And then some people wind up looking at it and say, maybe I don't want to necessarily sell my home, but could I still at least tap into the assets that are inside of my home? And some people wind up doing that via a reverse mortgage too. You still are able to live in your home. You don't lose any sort of ownership of the home. You live there for the rest of your life, but at least you could have those.

Aaron Wiegman: Potentially, for some people, that winds up being their biggest asset, but it's a way for them to tap that asset, still be able to pay for said care, and still be able to remain inside of their home, too. So there's a variety of different ways that you can access funds for long term care or strategies to at least apply to this. But I guess it's just going to have to be what makes sense for you as an individual.

Crystal Colbert: Exactly. And I think it's really important to at least plan for one of these options, whether it's being self funding or traditional long term care hybrid, whatever the case may be. Just making sure that that's in your financial plan because it is, like you said, 70% chance that you're going to need some sort of long term care in the future. So it's something that we always build into the plans. So just making sure that you address it.

Crystal Colbert: If I were to get a long term care policy, what would be the options to consider?

Aaron Wiegman: Sure. So when you wind up looking at long term care policies, I mean, kind of depends on how much of a policy do you want? Right? So the greater the benefits, of course, the greater the premium and so you kind of have to think through how long do I want this policy to last me? So we were talking about how long the long term care experience really was for individuals.

Aaron Wiegman: So you say, well do I need a lifetime kind of a policy or do I need just a couple of years or something like that. So there's everything in between and so you wind up thinking through it. And my take on it is that it's probably harder to figure out where the money is going to come in from up front. So if you don't have the money to have sort of a long policy benefit, maybe you wind up having a shorter policy benefit so that at least it's not coming out of your pocket or your assets right away. So the idea is how much do I wind up getting on a dollars per day kind of a thing, or do I wind up including an inflation rider there?

Aaron Wiegman: So if I wind up getting it at age 60 and I don't wind up going into a nursing home until age 83, what's the difference in the cost of care at that point in time if it's going to be going up by 5%? Right? So age is always a factor too. So the older you are, of course, it's probably going to be a little bit more expensive. So the older you are, the less healthy you are.

Aaron Wiegman: Those are simple things that are going to affect maybe like the cost of the premium. And typically if you're trying to do that with a spouse or partner, couples do wind up getting a couple's discount and that winds up making a whole lot of sense to make that a little bit more cost effective. And the other thing to take a look at is when you look at benefits too, there's a difference between the types of benefits and how you receive them. So it's the reimbursement. So it's basically we will reimburse you, but you're going to have to give us receipts and kind of kind of prove the cost of care over time.

Aaron Wiegman: So the reimbursement style of things, or there is the indemnity policy that says that basically once you qualify for it, we're going to give you whatever that dollar per day is and you don't have to submit any sort of receipts. So two different ways that you can wind up receiving the benefits there too.

Crystal Colbert: And what are the tax benefits when it comes to some of these policies and what people can put in place?

Aaron Wiegman: Yeah, so I mean, you think about it, in this type of situation where we do have an aging population and this could be a burden on the state and the federal government for having to put this kind of stuff in play, they do give you some tax benefits. So when you wind up looking at the tax benefits of these policies or the care itself. So for individuals, if I'm to be putting one of these policies in place, there is some tax deduction that is available. So if you are itemizing your medical expenses, those eligible premiums that you are paying for this as long as it exceeds seven and a half percent of your AGI, it can be tax deductible up to a certain age limit. So as you wind up getting older, they'll allow more of that to be tax deductible for you.

Aaron Wiegman: The qualified benefits that you do receive out of the policy, those are tax free. So it's not as though you wind up paying for this policy. You wind up having to pay taxes on the benefits that you receive. So as long as it's below whatever the daily limit is, and the daily limit is pretty high, so as long as you're receiving $410 or less in 2024 from said policy, all of those benefits are going to be income tax free. And so something else to think about too, is if you did have some sort of a life insurance related hybrid kind of a policy that death benefit, that's tax free too, because it is life insurance and life insurance tax benefits are tax free.

Aaron Wiegman: The other thing to think about is that if you are a business owner, right? So if you're incorporating, I mean, a lot of times thinking about business benefits and you talk four hundred and one K, you talk healthcare benefits, maybe there's some group life insurance things of that sort. But if you are a business owner, maybe this is something for you to consider. And one of the best benefits, the most tax, I guess efficient, biggest tax benefit for this is for your C Corporation owners. So for C Corp owners, all those premiums that you wind up paying for yourself as the owner, any sort of employees that you pay for spouses, all of that winds up being tax deductible.

Aaron Wiegman: So it's a pretty powerful benefit that you can put in place for yourself and your employees if that's something that you want to incorporate, if it's a little bit lesser, if you're looking at like pass throughs and S corporations. So it's the lesser of any sort of age based limit that you wind up having, the same age based limit that you have as an individual, lesser of the premium or the age based limit, I should say. So it's a little bit of a limited benefit for S Corp. Like pass through owners, but there still is a benefit of putting that kind of stuff in place.

Crystal Colbert: And so what are some of the discussions that individuals should be having when starting to look at some of these long term care policies or just discussing the need for it?

Aaron Wiegman: Sure. I would say early planning is probably best being proactive, taking proactive measures to even reduce your long term care needs. I mean, a lot of this planning is around the fact that this is kind of like the catastrophic planning, right? If you wind up putting money into one of these policies, I hope it's a terrible use of money, right? I hope you have a long healthy life and you never have to use any of this kind of stuff.

Aaron Wiegman: But it's the taking proactive measures to reduce your long term care needs if you're maintaining a healthy lifestyle, if you address any sort of chronic conditions, plan for maybe any sort of home modifications for the future, so you wind up making things a little bit easier for yourself as time goes on. A lot of that winds up making a whole lot of sense. Just as well we alluded to it before, but you probably want to have more communication with your family and have more family involvement in how you want to address potential long term care needs, right? You want to make those informed decisions, let everyone know, update your wishes for care, updating any sort of health care directives, update any sort of living will. So you're not putting that together just for yourself, but you're also putting that together for your family and the people who are going to help you make those health care needs, health care decisions in the future, right?

Aaron Wiegman: And the biggest thing is that we talked about it before too, is that those with family history tend to kind of take some action on this kind of stuff. But even if you don't necessarily have the family history, still something you need to plan for, right? And whatever that plan is, it doesn't necessarily have to be an all or nothing kind of a plan, because the people who fully insure this kind of stuff for maybe a lifetime or unlimited kind of a need, that could be pretty costly, right? And you're setting aside a lot of assets that you may not be able to tap into in the future. So find the right plan that works for you, whether that's fully self insuring something, or maybe you wind up putting some sort of a simple policy in place, like we said, to give you that upfront boost in insurance benefits to help you out with at least incorporating some of those the plan of care, right?

Aaron Wiegman: So the other thing is make sure that you're actually talking to professional people when it comes to getting guidance on this kind of stuff. It doesn't necessarily have to be your neighbor or your coworker or things of that. And sometimes what I found is that you can be maybe influenced by people who have had a bad experience with the policies of old, which have kind of influenced people from actually taking steps to protect themselves now, right? So a lot of the stuff that we were talking about from 1520 years ago is not the way that you wind up incorporating those same plans today.

Crystal Colbert: So in conclusion, what are some of the biggest takeaways that people should take from this podcast?

Aaron Wiegman: Well, hopefully this gives you a good overview on what to be taking into consideration, right? And that long term care planning. Take some proactive steps today to at least see what winds up making sense for you. Sometimes it isn't all about just the dollars and cents. On things, but it's more about what are my options and can I do this with dignity?

Aaron Wiegman: Right. And incorporating your family into some of those decisions. Understand all the options that are available to you, if that does actually align with your financial goals, if it aligns with your risk tolerance. I guess what I've found is that people who have a higher risk tolerance tend to not want to insure those risks. People who have a lower risk tolerance tend to want to insure those risks.

Aaron Wiegman: There's not a right or wrong on that kind of a thing. It just winds up being what makes sense to you. So we've had people on all spectrums of those things you think through and you say, maybe I do have enough assets to do this kind of stuff. And I guess the example that I wind up using on that is, do you think Warren Buffett has enough assets to self insure? And he owns long term care insurance, right.

Aaron Wiegman: Because he understands like I'm leveraging dollars, right, that's that's simply what he's doing and he can insure that risk. I mean, he is kind of an insurance guy, but he understands the need of, or at least like the proper use of dollars to ensure a risk. So, yeah, I guess it's really just a matter of seeking some professional advice and getting a comprehensive long term care plan that really incorporates your overall financial planning strategy because you are looking at a lot of different things. It's not just long term care. It's do I have the dollars to pay for said know, whether it be out of my own pocket or do I want to set aside dollars to be able to lever them up in the future?

Crystal Colbert: Awesome. So Erin, if somebody wanted to reach out to you to find out more about long term care and their options, how would they reach out to you?

Aaron Wiegman: So you can always look us up and if you wanted to reach out to me directly, phone number here at the office is 858-487-3939 or you can email me directly at Aaron[dot]Wiegman[at]financialsense[dot]com. Crystal, how about yourself if someone had any sort of questions for you?

Crystal Colbert: Yes. So if anyone had any questions, they can always reach me at the same number or they can reach me via email at Crystal[dot]Colbert[at]financialsense[dot]com.

Aaron Wiegman: So, thanks for joining us here today. If you liked what we had to say and you do have any questions, please do reach out to us. If you know somebody who you think maybe this podcast would be helpful and you think the content would benefit them, go ahead and share the podcast with them. And going forward too, some of these things that we're trying to do is we're trying to have answer financial planning for folks who are listening to this podcast and have some sort of issue or strategy or something that they would like to address. So if you do want to have us answer any questions that you might have, please reach out to us. Reach out to us on the website and see what we might be able to incorporate on a future episode of Lifetime planning. So thank you very much.

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