From my experience in working with seniors, here are the five most offered reasons why people have not purchased long term care. In most cases, the reasons are not valid. It’s not that they don’t make any sense; it is due to lack of information. So here are the big five along with some insights that may cause you to re-think your position.
1. Denial. “I won’t ever need long term care—I’ll never go to a nursing home.”
There are a couple of ways to look at this. First, it is true that about 50% of the population will go to a nursing home at some point—generally at the very end of life. But that also means 50% won’t. It’s a flip of a coin.
Still, 50% is a pretty high chance. If no provisions are made for long term care, a person with little or no assets is up a creek and the person with modest assets could rapidly dissipate their entire estate. So it’s insuring against an unknown, just like other insurance. Do you have fire insurance on your home? How many times has your home burned down?
Consider this: There are a lot more long term care situations than going into a nursing home. You could need home care, adult day care, assisted living or hospice care. These are all long term care variations requiring money.
2. “It’s too expensive.”
It very well might be. You could have health challenges. You could be too old to get a good rate. But you need to think outside the box.
There are a number of things you can do that entail just “moving assets around” that would provide long term care benefits. None of these require an out of pocket premium.
For example, there are insurance companies that will allow you to “exchange” all, or a portion of, a CD, annuity, life insurance policy or IRA for a product that has most of the attributes of the fund transferred and has long term care benefits to boot.
3. “My kids will take care of me.”
Maybe. But pretty much for sure if you live in rural American and it’s the late 1880’s. Today, families are scattered all over the country. As much as this sounds like a good idea on paper, in reality it is hard to pull off without friction somewhere.
4. “I’m a veteran—the VA will take care of me.”
Again, maybe. First, they have to have a bed for you. Remember, there are 70 million Baby Boomers right behind you and it’s all about supply and demand. Economists are already predicting that nursing homes won’t be able to be built fast enough for the general population, much less expanding VA hospitals.
Before you put all your hopes on the VA, I would suggest reading the qualification rules. This is a topic unto itself, but let me give you a couple of examples.
a. In some places, you must have a 70% service-related disability to qualify.
b. For others, the best option may be State Veterans Nursing Homes. These are generally out in the sticks. The VA provides a per diem ($59 a day in 2005) so the vet may have to pay the difference unless a state subsidy for low income veterans is available. There are waiting lists, some as long as two years.
So making the assumption that the VA will take care of you does not put a lock on long term care.
5. Medicare will cover my long term care costs.
Again, this is a complicated topic requiring a detailed explanation. Let me just say here that there are a lot of hoops you have to jump through to even qualify. Second, the benefits are only offered for a limited number of days. On top of that, most people don’t qualify for the maximum number of days.
Several years ago, there was a popular planning technique used for Medicare’s cousin, Medicaid: Give or spend your way into poverty so you could qualify for longer benefits. But now the rules have changed. For example, the powers that be were able to “look back” only three years to see what was given away to reduce your estate to Medicaid’s definition of poverty. Now it’s five years—and not from the time the asset(s) were given away—five years from the “application time.” The equity in your home was previously not taken into the calculation; now it is. If you have more than $500,000 of home equity, you don’t qualify.
So, the bottom line is that Medicare really is not a long term solution for most people.
The point of all this is to encourage you to do more homework if you have offered any of these reasons for not addressing the long term care risk. One of two things is likely to happen. You will discover that what you think would be your solution really isn’t or you will solve the problem by being exposed to a planning technique or product that was previously unknown to you.
Robert D. Cavanaugh, CLU is a 36 year financial and estate planning veteran and author of the free newsletter, “The Estate Preservation Advisor”. To subscribe and get the free video, “How to Sell Your Life Insurance Policy for More Than the Cash Value”, go to http://theestatepreservationadvisor.com/freevideo.htm