I have an important question. Who will feed you when you can no longer feed yourself? Who will bathe and dress you when you are no longer able to bathe and dress yourself? Almost everyone I am in contact with has either known someone or had a family member who has had a long-term care event or needed long term care assistance. These questions are being asked by the family member many times because the one needing assistance didn’t think it would happen to them. Since mom has passed, the daughter is trying to figure out if she will be the one who will have to take time off of work or away from her family to bathe and dress dad. This question alone is why I made the decision early on to have long term care coverage. I know it’s a personal decision, but I didn’t want my daughter bathing me. My wife certainly didn’t want our sons helping her. It’s also a little bit of pride.
November is National Long Term Care Awareness Month. I thought I would take this opportunity to walk through a couple updates. Long Term Care insurance first came on the marketplace in the 1980’s. Many long-term care facilities were being built to address the growing problem, but they were out of price range for most Americans. As we continue to make medical advances, we are living longer. This is both good and bad. Because of the longevity of live, this means we are finding a rise of cases of dementia or other cognitive challenges. Insurance companies issuing these policies didn’t always know the risk involved. They also issued policies patterned much like disability policies with a waiting period and a list of “have to’s” before the claim was paid. For those that had a claim, or more specifically, for those families that had a claim, there were many “hoops” to jump through and periods that they had to provide the care before the insurance took over. These challenges created distrust among anyone who suggested long term care. There were also many success stories, but we don’t hear too much about them. Like the news, we hear about the bad, never the good.
Another challenge with the traditional “pay as you go” is the prevalence of group policies. Again, this is both good and bad. The advantage is the cost of the group policy is less than an individual policy. The disadvantage is they have the ability to increase your premium or decrease, as a group, say an age base, at any time. Unfortunately, this may be the time or age when the LTC claims start coming in. So, imagine making premium payments for 15-20 years and then all of a sudden you receive a notice that if you want to keep the coverage, you have a choice- pay more or accept a reduced benefit.
Good NEWS - Long Term Care Insurance has evolved. In addition to the traditional pay as you go policies (and there are quite a few out there), there are now Hybrid Long Term Care Insurance Policies. This is what I own for my wife and me. One of two things are going to happen to EVERYONE. You will either actually have a long-term care event and need someone to take care of you OR you will NOT have a long-term care event and you will pass away. The hybrid covers you in both situations AND usually has some type of refund of premium attached if you decide to change your mind 10 years later – maybe you win the lottery or receive a very large inheritance from an aunt you didn’t know.
The hybrid policy allows you to make a lump sum payment or a series of payments WITH an end date. Once the end date arrives and you have made those payments, your long-term care coverage is permanent. These can be paid 3,5,10, or sometimes 20 years. You are purchasing a certain monthly benefit of care. The amount of care you may need to today will most likely increase quite a bit until you actually need it. With most plans, the elimination period (time you have to wait to collect) is 0 days or 30. Obviously, the shorter the better. Finally, if you have the coverage and you never need it and you pass away, your beneficiaries will receive the death benefit, typically at least the amount of premium you paid into the policy. Hence, the definition of hybrid. The coverage is for long term care, but there is a small life insurance benefit built in. It would be necessary to balance this conversation with the fact that the guarantees in these plans are based on the premiums being paid in full (and timely). Remember, the guarantees are based on the claims paying ability of the insurer so you will want to do your homework on the insurance company.
One more piece to know. Effective January 1, 2022, the state of Washington now imposes an extra tax on each citizen’s state income tax return to pay for long term care. The only way to avoid this tax was to have a long-term care policy in place before the law went into effect. Again, good and bad news. The good news is that there is a base level of care for their citizens, once the pool is built up (benefits not available to 2026). However, the choice of care is up to the state and not the individual. This takes the control out of your own care. Other states, including California, are looking at this model to enact. In fact, based on the California Long Term Care Insurance Task force will be presenting a feasibility study due January 1, 2023 with an actuarial report due January 1, 2024. Obviously, the concern is real enough to form a task force to study alternatives for the citizens of CA. In California, we do not know what will happen, but I believe it may make sense to look into coverage to ensure your health and your pocketbook.
Again, November is National Long Term Care Awareness Month. You probably know someone affected. Give them an extra hug, spend a little more time holding their hand and just listening to the stories. Long term care can affect anyone, not just the elderly. We know a 52-year-old who had a stroke that needs coverage. Please do yourself and your loved ones a favor and at least look into this. I would urge you to plan ahead with your family members.
Mike Lockwood (CA Insurance License #0730158) is a registered representative of Lincoln Financial Advisors Corp. Securities and investment advisory services offered through Lincoln Financial Advisors Corp. a broker/dealer (member SIPC) and registered investment advisor. Insurance offered through Lincoln Marketing and Insurance Agency, LLC and Lincoln Associates Insurance Agency, Inc. and other fine companies. 17400 Laguna Canyon Road, Suite 125, Irvine, CA 92618, Phone: (949) 341-4277. Lincoln Financial Advisors Corp does not provide legal or tax advice. Oakwood Wealth Partners is not an affiliate of Lincoln Financial Advisors Corp. CRN-5242577-112222