As we get older, our independence diminishes for basic activities of daily living (ADLs) such as eating, preparing meals, dressing, bathing, transferring in/out of bed/chairs, and continence. When we lose the ability to perform ADLs independently, we rely on others for help. Initially, family members are the first to help, but how long are they able to continue helping us if they have their own lives to manage? We can hire people do care for us, or move into an assisted living facility or nursing home. Of course, those solutions cost money. There are a few ways to provide for this care:
We can certainly take money from our savings accounts or investment accounts, but how long will that last? In the 10th edition of Genworth’s “Cost of Care” publication, the median annual cost of an assisted living facility in the Chicago-Joliet-Naperville region in 2012 was $55,800. Not factoring inflationary increases, a three-year stay could cost $167,400 or more.
“My kids will take care of me”
Let’s look at an example of a 75-year old couple where the husband needs help with some of his ADLs. His wife, also 75, may be able to help him with preparing meals and eating, but what about showering and getting dressed in the morning? They can ask their kids to help out. They may be in their late 40s with kids of their own and full-time jobs. Is it realistic to expect our family to help in that scenario? While we never hope that our family abandons us in time of need, it may just not be realistically feasible to have our family take care of us.
Medicare will not cover this type of care.
Medicaid could cover this type of care, but one has to have very little assets ($2,000 max) to qualify. You are also subject to restrictions of the state of Illinois and the facilities that are available.
Long-term care insurance (LTCI) is the best way to pay for this care should you need it. The four basic features of LTCI are:
- Daily benefit amount – this ranges from $50 to $400 per day of care. Some policies have monthly maximums ranging from $1,500 to $12,000 or more
- Benefit period – this ranges from 2 years to 7 years, and some policies offer lifetime coverage.
- Inflation protection – in recent years the cost of long-term care have increased every year. To keep up with inflation, a LTCI policy can provide for increased daily/monthly coverage limits in subsequent years of care.
- Elimination period – similar to a deductible, the elimination period is the waiting period between when you initially need care and when the LTCI policy will start paying a benefit. These are commonly 90 or 100 days, or shorter periods of 60 or 30 days.
There are many other features/options available depending on your needs and budget.
Hybrid Long-term care/Life Insurance policy Many insurance companies have life insurance policies that provide a benefit when you die, but also the ability to “tap into” the death benefit should you need long-term care. For example, a $500,000 policy could also be used for long-term care should you need to hire someone for assistance. If you require long-term care and use $200,000 in long-term care expenses before you die, your heirs still receive $300,000 in death benefit. These policies are growing more and more popular, and are a great way to cover two needs in one policy.