Questions and Answers on One of Today's Most Popular Financial Planning Topics

According to the 2010 U.S. Census, there are more than 308 million people living in the United States. It is estimated that almost half of all Americans will need long-term care (LTC) at some time after age 65. As medical costs continue to rise along with life expectancies, it is crucial for individuals to include LTC costs in any wealth-management plan.

What is LTC?
LTC refers to an array of services that are aimed at helping people with chronic conditions so they can cope with limitations in their ability to live independently. One of the most common misconceptions about LTC is that it only means nursing home care. Instead, it is personal and/or custodial care for an extended period of time, which can include any of the following services: 1) nursing home care, 2) assisted living facilities, 3) home health care, 4) adult day care or 5) respite care.

How is risk defined when discussing LTC?
Risk — as it pertains to risk management and LTC — refers to spending all available assets to pay for care. It also means there is a chance that some individuals may not be able to afford personalized care (such as home health care) or may need to rely on friends and family for assistance.

Is self-insuring for LTC a legitimate possibility?
If an individual is financially independent, self-insurance is an option for LTC planning. However, it is not the only strategy available.

Why is it important to check the quality of an LTC provider?
The financial strength of the provider will likely have an impact on the quality of the LTC contract and the cost of premiums. In recent years, several large providers have failed to anticipate the level of risk associated with insuring individuals for LTC. As a result, those providers stopped issuing new LTC contracts and raised premiums on those LTC contracts already issued.

1. Self-insuring

Self-insuring against LTC costs may be a viable option. However, individuals need to seek an investment vehicle that allows their savings to grow while keeping pace with the changing costs of the care

2. Medicare

Medicare covers skilled care with a maximum 100-day coverage period.

3. Medicaid

Medicaid requires individuals to spend their assets to a certain level, after which the program begins to pay for care. Coverage varies by state, but LTC options are generally quite limited.

4. Health insurance

In most cases, personal health insurance will not pay for services usually associated with LTC. Coverage is typically limited to skilled care.

4. Customized plan

Creating a customized plan relies on a combination of several options mentioned above in addition to LTC contracts, depending on an individual's situation and specific needs. A financial advisor can be a valuable ally when deciding how to design such a plan.

The Bottom Line
Individuals can protect themselves by preparing for the possibility of a need for LTC by securing the appropriate type and amount of coverage. Securing LTC coverage through LTC insurance is one way to ensure that individuals have sufficient assistance in the event there is a need for care. It is important to ensure that the plan ultimately meets the plans and expectations of the individual and to seek an advisor who is aware of LTC issues. Further, an advisor should be sensitive to family concerns, respect a family's wishes regarding care options and design an appropriate plan to meet specific needs.