Long-Term Care: Protecting for the Unexpected

Unpredictable medical events can happen to anyone at any age. Consider singer Gloria Estefan, who broke her vertebra in a bus accident at 32 years old, or Montel Williams, diagnosed with Multiple Sclerosis, or President Ronald Reagan, diagnosed with Alzheimer's disease. Who tended to President Reagan as his disease progressed? How long did Gloria Estefan have to stay in a rehabilitation facility? How was this care paid for?

When personal activities of daily living are limited by an illness or condition that lasts a relatively long time, a person may need long-term care (LTC) assistance to take care of their basic needs, such as feeding, bathing and dressing. However, the costs for this type of care can often deplete the assets that have been saved and counted on for retirement. Imagine having to empty your IRA account or 401(k) account because a sudden illness required you to enter a rehabilitation facility?

Whether used for temporary care needed for a few weeks or months (i.e. rehabilitation from a hospital stay or recovery from an illness, injury or surgery) or ongoing care needed for a few months or years (i.e.: chronic medical conditions, chronic pain, permanent disabilities, dementia or ongoing help with activities of daily living), owning a long-term care insurance policy is one way to help alleviate a possible financial strain that could threaten your retirement income and financial security.  

 Most LTC policies will cover nursing home facilities, assisted living facilities, home health care (important to those who wish to remain in their home during an illness or injury), adult day care, respite care, and care coordination. Since policies are not uniform, it is important to know the exact terms of the policy you are looking at. It is also important to find a policy that fits your needs and one that you can afford, as well.

 There are three types of LTC policies available: a traditional LTC policy, a linked Life Insurance LTC policy and a life insurance policy with a LTC rider. 

1. A traditional LTC policy is a comprehensive policy, where the insured pays an annual predetermined premium in exchange for LTC coverage. If you never use your LTC care coverage, you or your estate will not receive a return on premiums paid. (If you don't use it, you will lose it!).
2. A linked life insurance LTC policy is usually funded with a single-pay lump sum deposit. They provide a guaranteed return of premium (if you change your mind you can receive all of your money back through the return of premium rider ), a guaranteed life insurance death benefit and a guaranteed LTC benefit.
3. Life Insurance policies with LTC riders are similar to linked life/LTC policies in that a life insurance death benefit is used to accelerate funds to pay for LTC expenses. However, premiums can be funded over the lifetime of the insured or by paying a lump sum for a period of years. There is typically no cash value.

 When shopping for a long-term care policy, it is important to use a reputable and licensed insurance broker. It is also important to examine the details of your policy, so that you know what is covered and what is not covered.  Some questions to ask your insurance representative:

Are benefits paid as a reimbursement or sent to the policy owner to use as they see fit?

Some policies request to directly reimburse the medical facility/nurse/etc. upon submission of receipts. After certification of illness, other policies will send you a monthly check to use as you see fit, until your condition subsides or until the policy ends. Hiring your neighbor to go grocery shopping for you might not be covered under reimbursement. However, fund paid directly to you would be used for this purpose.   

Will the policy cover home health care or must the recipient be in a facility?

Some policies will require the patient to be in a nursing home, while other policies allow coverage for care received at home. Keep this thought in mind as you shop for a policy, particularly if you would like the option of remaining at home during a long-term care event.

How many years of LTC will the policy cover? 

Most policies will not cover your illness indefinitely. The typical coverage period is three to five years.

Is there an inflation rider?  

Medical costs continue to increase each year. An inflation rider will allow your benefits to rise with inflation over time. If you purchased a policy today and needed to use coverage 20 years from now, you will receive a larger benefit.  

When an accident/illness occurs, will you be covered immediately or is there a waiting period until benefits begin?

Some policies allow for immediate coverage. Other policies require a long-term care event to occur over a time period (i.e., three to six months) before coverage begins.

While owning a long term care policy cannot stop an accident or illness from occurring, having a policy in place will increase your financial security should an unexpected event occur.

This article was written by Michael Margarites and Kimberly Breslauer, Financial Advisors with Oppenheimer & Co. Inc. who can be reached at 212-667-4106 or 212-667-4204. This article is not and is under no circumstances to be construed as an offer to sell or buy any securities. The information set forth herein has been derived from sources believed to be reliable and does not purport to be a complete analysis of market segments discussed. Opinions expressed herein are subject to change without notice. Additional information is available upon request. Oppenheimer & Co. Inc., nor any of its employees or affiliates, does not provide legal or tax advice. However, your Oppenheimer Financial Advisor will work with clients, their attorneys and their tax professionals to help ensure all of their needs are met and properly executed.