It's sad but true: By the time most people wake up to the fact that they wish they had a long term care insurance policy, they are too sick and/or too old to buy one.
So, in an effort to mitigate the crushing financial toll long term care will have at that point, many of them end up doing short-term planning - let's call it crisis planning. Crisis planning isn't about optimal strategies. It's all about limiting the financial destruction and trying to make up for the fact that no real plan for how to pay for care is in place.
Getting long term care planning done well in advance stacks the deck in your favor when care is needed. That's why a typical 40, 50, and 60-year-old does themselves a big favor visiting the topic of long term care planning years (decades, really) in advance of their 80s, when they are most likely to have a claim.
By planning well in advance, a person has at least 3 distinct advantages:
The gold standard solution - long term care insurance - is less expensive because of the long time horizon. While the occasional new policyholder suffers a claim shortly after policy purchase, the insurer is pricing the policy for the vast majority of people who will pay for many years before a claim is probable. The younger buyer benefits from this pricing reality.
The second advantage is illustrated by a saying that long term care insurance industry insiders are fond of: The insurance may be paid for with money, but it is health that buys the policy. That's because - to the disappointment of the vast number of people inquiring about the insurance - someone must be relatively healthy in order to purchase a policy. Did you know that at least 25% of long term care insurance applications are denied? The declination rate increases with age, an advantage of planning at earlier ages.
The third advantage is one rarely considered. Not all long term care needs arise at very old age. An accident or a diagnosis such as early-onset Alzheimer's may make someone who planning on purchasing long term care insurance uninsurable. And, though it would be a tragedy for a healthy younger person to suffer a need for long term care services, imagine their relief if they had done long term planning and already purchased a policy!
Crisis planning - on the other hand - is about trying to either squeeze more care from dwindling assets, or to shelter assets by getting onto a government program (usually Medicaid). In a sometimes desperate bid to make money last, people can seek out less than optimal care providers. They may purchase a type of discount care card; those cards are not insurance and not subject to same regulations as insurance. Though those short-term planning strategies may be helpful, there is little debate that they are as good a private long term care insurance.
The other type of crisis planning that is deployed is the services of a Medicaid planning with an Elder Law Attorney. In a typical scenario, a family may spend $20,000 in legal fees to save $80,000 in money that would otherwise need to be used on care before Medicaid would start paying the care bill.
Let me point out two facts worthy of consideration:
Divesting oneself of assets in order to save an inheritance for the family usually means the person needing care will go onto Medicaid. Medicaid can greatly inhibit both care choices and the ability to move if you ever decide you are not happy with the care. If, for example, you would like to receive care at home, that is usually not an option with Medicaid. In general, if you are receiving Medicaid-paid long term care, you will be receiving that care in a nursing home.
Transferring money to qualify for Medicaid planning forces taxpayers to pay for your long term care. This care would otherwise be paid privately or by insurance company claims payments. Many people find artificial impoverishment morally repugnant.
In summary, there are many reasons to plan years ahead for how to pay for long term care. As opposed to crisis planning, when there is long term care insurance in place, the ability to hire the best long term care provider is greatly enhanced. Additionally, families benefit from knowing the payment source is the insurance company, not life savings or current income.
Brigitte Bromberg, MS, CFP®, CSA® is an independent insurance specialist who provides unbiased, consultative, solutions for long term care, life and disability insurance needs.
For more than 30 years Brigitte has worked diligently to provide clients the information and insight they need to make informed insurance decisions. President of Winning Strategies Group LLC, Brigitte loves speaking to groups, and she also loves helping people implement creative, smart insurance strategies.