What does the future hold for you?

Dec. 1, 1999
That?s a question no one can answer, but long-term-care insurance may be a solution that can help you prepare for any possible pitfalls.

That?s a question no one can answer, but long-term-care insurance may be a solution that can help you prepare for any possible pitfalls.

Hugh Doherty, DDS, CFP

The dental profession has witnessed a tremendous increase in interest regarding long-term-care (LTC) insurance. Unfortunately, LTC insurance has been presented with more scare-oriented information than practical or accurate facts. This article will focus on how LTC insurance works and how important it is for you to consider purchasing it. Many doctors don?t realize that the long-term-care issue could be the one thing standing between them and future financial security. Why? Let?s take a hard look at these statistics.

* A 65-year-old American has a 43 percent chance of staying in a nursing home in his/her lifetime.

* Of those living to 65, nearly one in four will spend one year or more in a nursing home.

* One in 11 will spend five years or more in a nursing home.

* At a minimum of $30,000 annually, five years of care at a nursing home could mean at least $150,000 would be needed to cover the care. In some situations, it could cost more than $60,000 annually.

Now ask yourself these two questions, OCould I afford these bills?O and OWhere would the money come from?O Long-term care could cause a severe financial strain, and it is easy to see how these patients could quickly exhaust their hard-earned savings. Furthermore, you can?t rely on the government. Medicare provides little in the way of long-term-care coverage, and Medicaid only is available after having spent down income and assets to qualify for this welfare program.

The doctor caregiver

Combine rising health-care costs with several aging and demographic trends, and people fear they will be a burden to their families. With increased life expectancy for doctors in their 50s or 60s, they may find themselves as the primary caregivers for parents or other relatives in their 80s and 90s. What happens to the doctor caregiver and his/her family when he/she becomes a caregiver? How does this circumstance affect the doctor?s life? What about his/her practice? Are the parents close enough to make this predicament a possibility? If not, must you move the retired parents, because one of them is sick and needs care? How will the parents feel about leaving a familiar environment? How will the parents feel about depending on their children after years of raising them and watching out for them? How does one deal with this role reversal?

These are some of the emotional issues involved with long-term care. With concerns like these, it?s apparent that this is not just a financial emergency, but also a severe emotional strain. It is a situation that happens all too often in this country, because no better alternative plan has been established.

If you are a potential caregiver for aging parents, you must examine both the financial and emotional issues. A long-term malady can wreak financial havoc, but equally devastating is the emotional damage that can drive a wedge between even the strongest of families. One serious problem I have seen is the response of the doctor?s siblings, who often develop an attitude of, OLet my rich brother/sister the doctor take care of Mom and Dad. O Long-term care can bring out a number of smoldering family issues that would never have surfaced if there had been advanced planning.

Hard to talk about

It is almost as hard to talk about long-term care as it is to talk about an estate plan. It?s difficult to discuss because you have to make a lot of decisions about issues that you don?t want to think about. I begin by asking clients about their overall general health and whether they are going to be relied upon to care for parents in the event something catastrophic happens to them. We also discuss how important it is for them to address their own personal situations regarding long-term care. I also ask if they have considered the necessity to protect their assets. Without adequate protection, the expense of an extended illness could steer their retirement dreams into uncertain waters.

Paying for long-term care with the assets that they worked hard to accumulate could be the torpedo that destroys their future financial security.

The retirement years

Longer life spans are having an impact. American males born today can expect to live well into their 70s, while the life expectancy of females hovers near 80. The fastest-growing demographic segment in the country is the over-85 population, which is expected to grow 115 percent during the next 30 years.

Living longer means living more years in retirement. You need to prepare properly to enjoy those OGolden Years.O It means you need more money to maintain a reasonable lifestyle. The majority of dentists have not demonstrated the ability to save at a rate that will allow them to live those years in their preretirement manner. Many could be forced to work longer in order to earn some needed extra dollars.

How does an illness or injury impact this retirement scenario? If dollars are being stretched to their limit while one is healthy, the costs associated with lengthy or chronic medical problems can destroy that already fragile financial situation. A retirement filled with medical difficulties and despair is not how most doctors and their spouses envision living their final years.

The mantra that describes the situation best is, OI have good news and bad news for you. The good news is you are going to live longer. The bad news is you are going to live longer.O Thus, the likelihood of something catastrophic happening which would require long-term care is becoming more and more a possibility.

Retirement income could incur heavy demands from longer life spans and extraordinary medical expenses, but LTC insurance would provide individuals with maximum control of their financial destinies. It truly is the vehicle that can fill the protection gap very readily.

Is long-term-care insurance a solution?

People probably have read something about the long-term-care issue, had first-hand experience with a situation, or know someone who had to deal with its difficult circumstances. I believe that you are remiss if you don?t secure long-term-care insurance. Here are my three reasons that I feel supports the purchase of this type of insurance.

1. It will protect any substantial wealth accumulated. Doctors could build assets in their estates, only to see them completely devastated with a catastrophic health-related incident. I think of long-term-care insurance as Owealth preservationO insurance.

2. Doctors have enough relatively high-discretionary income to easily cover the premiums. I tell clients, OAt whatever age you purchase a policy, it will equal less than one year of care in a nursing home today.O As an example, you could be 45 and pay on a LTC insurance policy for 40 years or 75 and pay in for 10 years, and the total out-of-pocket cash will be less than the cost of one year in a long-term care facility.

3. No one has a crystal ball to say when and where something catastrophic is going to happen. LTC insurance relieves any financial anxiety about the possibility of institutionalization.

A tax-qualified policy

I recommend that you purchase a tax-qualified policy in which the premiums are tax deductible to the extent that other medical expenses are deductible, and the received benefits are not taxed as ordinary income. The government realizes that you cannot pay for the coverage, so it has had to put a carrot out there to encourage people to buy their own policies.

What benefits should you look for in a policy?

> It should pay for all levels of care the doctor orders in any state-licensed facility, whether it?s a nursing home, assisted living, or adult foster care.

> With the tax-qualified policies, you become eligible for funds if you can?t perform two out of five or six activities of assisted daily living (ADLs). One of the ADLs is bathing. Some have left the word ObathingO out. That is a critical omission, because 90 percent of the time, that?s the first thing that goes. Make sure your policy has the word ObathingO in it.

> All policies should cover Alzheimer?s disease and cognitive impairment. The coverage should not be tied to one?s ability to perform the activities of daily living. Some policies say, "We will cover care if you cannot perform two out of five activities of assisted daily living and are cognitively impaired." I don?t like the word Oand? because the person whose mind is gone may be able to walk, eat, dress and bathe, but needs supervision as to when to do each of those activities. OOr,O is OK, but not the word Oand.O

> Should a policy include Ohome care?O No policy on the market will pay for full-time care in the home. Rarely do you see a person make a claim on the home-care side of the policy, because those are not the costs that are devastating.

What is devastating is full-time care in a care facility.

Other benefits

> The applicant must choose an elimination period (the number of days before the daily amount begins to pay). The most popular elimination period remains 0,

where benefits begin from the first day long-term care services are necessary.

> The benefit period is the length of time in which the daily amount is payable. Most individuals would like to choose the unlimited benefit amount, a lifetime of coverage where benefits are paid for as long as they are needed. This could be an expensive selection, however, depending upon the person?s age. Shorter benefit periods can be selected; five- and six-year benefit periods are the most popular.

> The other key election is the addition of an inflation feature (COLA). Election of a $150/day benefit today may be sufficient, if the insured utilizes the policy in the near future. But what about 10 years from now? Between 1985 and 1995, nursing-home rates increased annually at an average of 9.7 percent. If this average increase continues, it could rapidly diminish the value of that $150/day over a 10-year period. The answer to the dilemma is to add an inflation feature to the policy that increases the daily benefit each year (5 percent) to help offset the effects of these medical-cost increases.

In summary

As you can now surmise, the long-term-care issue and the need for quality long-term-care insurance are growing dramatically in importance. The frightening prospect that many face today is that nursing home care is expensive, and it easily can drain financial resources. Because of this, the decision to buy long-term-care insurance has become an important financial-planning issue. Because long-term-care policies are very different from one another in the benefits they offer and their premium costs, it is important to evaluate these policies carefully. A comparison worksheet that will assist you in comparing policies is available to you. Call Anne Morris at (800) 544-9653.

It would be wise to look closely at LTC insurance to be prepared for the unexpected, but most of all, to protect the assets you have worked so hard to accumulate. Long-term-care coverage makes a lot of sense.