In their mid-20s, at a time when Todd and Daydra Bauman’s biggest worry should have been paying off student loan debt or saving up for their first home, the couple faced the unthinkable. A rare illness debilitated the 27-year-old Daydra.
“A normal body can detect what’s good and what’s bad,” said Todd Bauman. “Her body couldn’t.”
Because of her condition, Daydra required assistance as her sight and mobility suffered. Her husband tried to help as much as he could, but he needed work so the couple could stay ahead of the every-mounting piles of medical bills.
“We had to pay somebody to be with her at home,” Todd explained.
Thankfully, Daydra regained her strength within a year and was able to manage most daily tasks on her own. But the couple hasn't forgotten the financial and emotional burden they bore during that time.
Todd Bauman, now a State Farm agent in Walla Walla, often relays the experience to clients considering purchasing long-term care insurance.
Long-term care insurance pays for care not generally covered by regular health insurance or Medicare.
According to the U.S. Department of Health and Human Services, a 65-year-old today has a 70 percent chance of needing some type of long-term care services and support in their remaining years. And with health care costs outpacing inflation, Bauman and Kennewick State Farm agent, Scott Smith, agree that it’s an option most people should consider.
“Most of us hope we’ll die in our sleep when we’re 90 and never need it,” said Smith, “But many people do, and the alternative is that you don’t have it, and you go the state route. The state is going to make sure all the assets you have are used. They’re not going to let you keep a million in the bank. You’ll have to show you’ve depleted what you have.”
Long-term care insurance can protect a person from losing their home, assets and investments, and allow them to pass something on to their children.
On average, a person will use two to three years of long-term care in their lives. Depending on the amount of care they need, a $250,000 policy can disappear quickly. If a person requires more care, they might have to apply for Medicaid once their benefits run out.
Unless it’s a Washington Partnership for Long-Term Care policy, the state would require the policyholder’s assets, including their home, to be sold to pay for services.
Partnership program policies offer the same benefits and options as non-partnership policies for roughly the same cost; however, under a partnership policy, people can keep assets equivalent to the policy’s maximum coverage. Another difference is that partnership policies also include inflation protection. If you buy a partnership policy in Washington, it will help protect your assets in other states, too. Washington’s agreement with certain states allows policyholders to move to another reciprocity state and receive dollar-for-dollar asset protection.
Like State Farm, Thrivent Financial is one of a couple of dozen insurance agencies listed on the Washington State Insurance Commission’s website to sell Washington State Long Term Care Partnership Policies.
Before policy benefits can kick in, a person must be unable to perform two of the six activities of daily living, or ADL, which include: bathing, dressing, feeding, toileting, grooming (hygiene) and functional mobility.
Policies can be purchased for two, three or five years of long-term care, but instead of a deductible, Smith said there’s also an elimination period that needs to be fulfilled. When creating a policy, a person can choose from a 30-, 90- or 180-day elimination period to see if they can regain the ability to perform ADL tasks on their own, relying on friends and family to help bridge the gap in the meantime.
“You love that person, but you become their nurse, their servant, their everything,” said Smith. “It’s a tough role to be put into.”
Deb Newman, CEO of the Minnesota-based Newman Long Term Care, said that the impact on the caregiver, both physically and emotionally, could take as many as 10 years off of the life expectancy on the caregiver.
“Is that what we want to be doing to the people that we love the most?” Newman said. “That to me is the reason this discussion [between loved ones] has to happen.”
Advisors suggest talking about long-term care policies early, when they can visualize their retirement, health and assets. However, the longer a person waits, the higher the premiums are as rates go up with age.
“And a lot of people assume everyone can qualify for long-term care. If you’ve already had serious health issues, you might not,” said Smith. “Insurance is all about actuarial odds and some people beat the odds.”
Newman pointed out that deductibles might be tax deductible depending on the type of business someone owns.
“An S-Corp or an LLC, the government has a chart that tells you how much of your premiums you’d be allowed to deduct,” she said.
Michelle Clary, a Wealth Advisor with Thrivent Financial—another agency that carries Partnership Policies—said premiums could be structured so that the expense is gone by the time a person retires.
“We’re really encouraging people to make those decisions and talk about long-term care early,” she said, adding that people can use their HSA accounts to pay long-term care premiums.
The policies Smith handles average about $140 a month. It’s not uncommon for children to purchase policies for their parents, each chipping in a monthly portion to ensure their parents are cared for in the event they need assistance.
At Thrivent Financial, the earliest a person can purchase long-term care insurance is 18, although those policies are rare. Clary purchased a policy at 37, and Bauman bought one for himself at 33.
“No matter how you choose to solve it, it’s going to cost you,” said Bauman. “The average daily cost for long-term care is $200 across the country.”
That’s $73,000 a year you’d have to come up with. Assuming a long-term care insurance policy is $200 a month, a person would pay $2,400 a year for 20 years for a typical policy.
“So you can pay $48,000 over time or write checks for $73,000 every year,” Bauman said.
For those interested in learning more about long-term care policies, a list of Washington Partnership Policy carriers can be located on the insurance commission’s website.
Thrivent Financial will give educational presentations on the long-term care insurance May 16 and 17 at the Sageland Center, 11257 W. Clearwater Ave., Ste. 120, in Kennewick. For times and reservations, call 509-582-0570 by May 11.
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