If you are considering long-term care insurance, don't just focus on the cost. This blog is written to inspire you to look further than the price tag when determining your best path.
Don't Believe Everything You Read
My life has led me down some interesting roads. I have been a son, a brother, a husband, a father, a student, and a teacher at different periods in my life. Most of you reading this can relate to this statement in one way or another.
I mention this because as a fan of reading and learning in general, I think it's important that we know a little bit about the author, as well as the context of everything that we read.
Who is the author? What is their experience? When they wrote a particular piece, what was the context? I say this first of all because I believe it to be true, and secondly because a lot of the information that I see about financial planning is written by people that may or may not have a great deal of life experience in the area.
When I see long-term care insurance articles online, more often than not I have noticed that they are written by authors that are:
- not trained in long-term care insurance
- not a professional financial advisor or financial planner
- not licensed in any state to sell long-term care insurance
If you find this somewhat ironic, I understand. And while I am not advocating that you have to have professional experience to provide education about long-term care insurance, I am advocating that you might want to weigh a person's experience and background before you take a great deal of their financial advice to heart.
My Experience with Long-Term Care Insurance
I am a licensed and experienced financial planner in Wilmington, NC. I have been educating people regarding long-term care insurance since about 2003. I am also licensed in the state of North Carolina and Tennessee to sell long-term care insurance.
However, I still have a lot to learn about long-term care planning.
Don't we all? Financial planning is comprised of about seven components which I've listed below. And within one of these components alone (insurance planning) do we find long-term care insurance:
1) cash flow management
2) investment planning
3) retirement planning
4) estate planning
5) income tax planning
6) insurance planning (a.k.a. risk management)
7) employee benefit planning
This list is based on the thought leadership provided by the Certified Financial Planning Board of Standards.
With all of these different components of a financial plan, there are too many to master. I have been in the business since 1999, and I've yet to meet anyone who has mastered them all. So, before we get started, I will tell you that I consider myself both a teacher and a student when it comes to long-term care insurance planning.
My Financial Advisor Said I Didn't Need It
When I am conducting a financial planning review, I do more than just look at a person's investment portfolio. As a comprehensive financial planner, I have a responsibility to look at the whole picture. I view the whole picture as all of the seven components mentioned above by the Certified Financial Planning Board of Standards. I try not to skip any steps just because I might not make a commission on long-term care insurance, life insurance, or disability insurance. Or, by simply overlooking something.
If insurance planning--a.k.a. risk management--is an integral part of the plan, then let's keep it real and make sure we don't shortcut this area just because it's not the most entertaining subject on the outline.
Financial Professionals Tend to Gloss Over the Importance of Long-Term Care Insurance
I believe that many financial advisors and financial planners gloss over the risk management component of a financial plan. If we're being honest, is it more exciting to talk about the stock market and the world's economy, or to do a deep dive into our imminent decline in health that accompanies life?
Since long-term care insurance isn't fun to talk about, and since financial advisors are trained to sell the sizzle and not the steak, many insurance coverages, long-term care insurance included, often get thrown out with the bathwater when it comes to planning.
And in all fairness to my fellow advisors and planners out there, long-term care insurance has become more expensive over the years. In addition, complicated underwriting procedures and some negative press all culminate to make it an uphill battle even if a client does needs long-term care insurance--and can afford it.
Think Big Picture (Quality of Life)
At this point you might be thinking— why even bother? If long-term care insurance is expensive and hard to get, let's just not fool with it.
However, I believe that we shouldn't skip steps when it comes to maintaining things. I try not to skip oil changes or tire rotations just because they're not fun. So why would you skip the critical step of fully examining your long-term care plan in the context of your overall financial plan?
Let's think big picture.
Long-term care insurance is about protecting you and possibly your spouse. It's about living a more pleasant and dignified life towards the end of your story. Let's leave money out of the equation for just a moment. Let's discuss your quality of life in your later years—rather than simply focusing on the cost of the insurance itself.
It is important to understand that long-term care insurance pays for what is called non-skilled care.
This means that someone doesn't need to be a licensed physician or registered nurse to perform the duties of care. If you are needing heart surgery to stay alive—even if you are financially destitute and without health insurance —you will still get the surgery you need. This is skilled care.
But if you are not under any life- threatening emergency, and just need help with any of the following activities of daily living, then you need what is called non-skilled care. And this, is the care that costs someone (you, the government, or the insurance company) a fortune.
Odds of Needing Long Term-Care
Whether you're asking Dave Ramsey, Morningstar, or the federal government, many would agree that there is a very high chance that you will need long-term care at some point in your life. Check out the graph below if you are wondering about the probability of needing long-term care.
Here are the links to data researched above.
The real question is not whether or not you will need long-term care, but what quality of care will you receive when you get it.
Two Different Sunsets
Think of two opposing sunsets when you consider your long-term care facility options. Based on the long-term care statistics shown above, let's make the assumption that you have at least a 52% probability of needing long-term care at some point. And, let's play devil's advocate for a moment and assume that you or your spouse will in fact need this type of care at some point in the future.
Now, since we know you might need it, what kind of care would you like? High quality care? Or, something else?
High Quality Care
The higher quality care might come from an upscale facility that is paid for by the long-term care insurance company (or out of your pocket). This particular facility would be to "pricey" for Medicaid (AKA the government) to pay the tab.
This upscale facility could look like this:
There could be a beautiful horseshoe driveway that leads up to the facility. The long-term care building itself would look more like a mansion for the rich and famous than an actual long-term care facility. There would be red carpet that led up to the door, and a beautiful van parked out front always at the ready to take you anywhere that you wanted to go.
The atrium of the long-term care facility would be one that would make you want to linger and stay due to the quality of its construction and design. The staff would be incredibly cheerful, professional, and always at the ready when you would need them.
In this type of facility, everyone would want to come and visit you. Or if you had predeceased, say, your wife, everyone would want to come see her all the more because the quality facility was so nice it actually increased its members visitor rates.
Keeping the cost out of the equation for a moment. How does this sound?
And then there is the Medicaid bed.
If you are in the Medicaid bed, this means that you probably did not have any long-term care insurance coverage, or the money to pay for the care yourself. You either did not qualify for long-term care insurance coverage, couldn't afford the coverage, or decided that it wasn't worth the investment.
Also, if you are in a Medicaid bed that means that you had to spend all of your assets down including your retirement investments, to a near poverty level. Only then would you get a "free" Medicaid bed.
Your long-term care via Medicaid might look like this:
The building itself could have originally been an apartment built in the 1950s. It may have been converted to a long-term care facility for Medicaid patients many years ago. The exterior appearance shows that it could use some extra attention. There is no red carpet, and your means of transportation once you check in are not quite as world-class as those mentioned in the first example.
As soon as you walk in you can tell that the staff is overworked and underpaid. There is a smell in the building that you can't quite put your finger on. All you know is that it makes you feel uncomfortable, and a little nervous.
I could go on, but you get the point.
If you have long-term care insurance, or can self-insure, you will most likely receive a much greater quality of care if its needed. If you forego getting long-term care insurance coverage now, your new long-term care provider (Medicaid) may fall woefully short of anything that you have imagined for your quality of life in your sunset years.
My Personal Experience with Quality of Care
The first facility I mentioned above was one that I actually visited. It was not hypothetical.
I was visiting a client who had an excellent long-term care insurance plan that paid for her four-star experience. I believe she was there about three years before she finally passed, but I know that she was well taken care of, and in a facility that looked more like a vacation getaway than a long-term care facility.
The second facility that I mentioned was also one that I personally visited. It wasn't hypothetical either.
I was visiting a former client who did not have any long-term care insurance. Once she spent through her own assets and was essentially broke, this was the type of facility that she was stuck with via the government (Medicaid).
Both of these clients were wonderful people. The major difference in the quality of care that they received is that one had long-term care insurance to provide a large financial benefit, and one had no long-term care insurance at all (and could not afford to self-insure).
I do want to say that in our country, we are so lucky to have even the Medicaid beds. In other countries, the situation, is probably much direr.
Long-term care is probably the most misunderstood insurance that we have today. The possibility that we will need it is exponential; but our understanding of how to handle this type of risk is very poor, based on my experience.
My goal in writing this article wasn't to cover every component of the long- term care insurance discussion. Rather, I just wanted to share, from my personal experience, what your sunset years could look like for you—or for someone you know and love.
In the coming weeks I will write a follow up to this piece with some more details. For now, if you have a question, please visit my website to learn more about how we can possibly tackle these problems together.
If you are at a crossroad and researching long-term care insurance, please be prayerful about which road you take. It may be one of the most important decisions you ever make.
About the Author
Jeff Headrick is a financial planner with Inspire Financial Planning. When Jeff was still in his teens his father died unexpectedly. While his father was a hard worker and a good provider, he did not have the best financial plan in place when he died. This personal experience, coupled with being inspired by Dave Ramsey, Warren Buffett, and the laws of compound interest, prompted Jeff to enter the financial services industry in 1999. He has been helping people ever since.
Jeff lives in Wilmington, NC with his wife and two children. He spends most of his spare time just across the Intracoastal Waterway in Wrightsville Beach, enjoying the beauty of the NC Coast.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. The information presented does not constitute financial, legal or tax advice and should be used for informational purposes only. Since individual circumstances vary, you should consult your legal, tax, or financial advisors for specific information.