This November, during Long-Term Care Awareness Month, please join me in focusing on Situational Awareness. As its name implies, situational awareness is basically the skill of knowing what’s going on around you. It sounds easy in principle, but in reality it requires a good deal of practice.
And In the LTC world, I consider situational awareness to be of critical importance. Knowing the circumstances—the specific details of any potential client’s life situation—is the most sensible and helpful way I know of to respond to two of the frequent questions I routinely receive, from potential clients and advisors alike:
- “When is the right time to transfer this risk?”
- “How much Long-Term Care insurance coverage makes sense?”
In response to the WHEN? question (at what age is the right time to purchase?), my standard tongue-in-cheek reply is that it is solely an opinion answer. In other words, it depends on who you ask and what their opinion is. But my serious reply to this question is usually, “Let’s talk about it now,” because experience has taught me that if You are asking me this, there’s likely a specific reason You are asking, and I want to discover what it is. Perhaps you’ve experienced an LTC event with parents or family members, or maybe you’ve recently experienced significant health changes that expose your own vulnerability to this risk.
The truth is, it’s not your age that allows you to transfer this risk, it’s your health. It’s not rocket science that statistically, each year of life results in increased changes to our health, and most often the changes are more negative than positive.
Both my own personal and my professional experience have made me all too aware of this truth. Because I had health issues as a child— including having heart surgery— and all of it taking place in the days of file cabinets crammed full with hard copies of records, my personal medical record file was about 2 inches thick before I reached the age of 10. And it’s only grown as I’ve aged, to include records for 5 other surgeries. You get the picture. Also, as a medical technologist working in both the hospital setting and a doctor’s office environment, I’ve seen plenty of files of really enormous thickness.
The point is, every year, as each new level of a health issue stacks up on the earlier ones already in the pile, it brings more, not fewer challenges to the underwriting process—and more uncertainty as to whether the carrier will make you an offer of coverage. Clearly, then, younger and healthier is the right time to make this transfer, in my opinion. Yes, your financial ability will pay the premium, but it’s your health that buys it.
My recommendation for the answer to the HOW MUCH COVERAGE? question is, again, it depends on the specific client; hence my “No One Plan Fits All” position. Ironically, because today we know what we didn’t know in my earlier years of LTC planning, the recommended amount of coverage bought today is similar to the benefit amount of years ago, and less than the benefit period bought then.
Utilizing the carriers’ Claims Data information now available to us, we have a better understanding of how long claims last and where (most) of the care is received. Utilizing the annually updated Cost of Care Surveys by these same carriers, we know the Cost of Care for Home Care, Assisted Living Care and Skilled Facilities in all states. Using Georgia as an example, $3,300 is the cost per month in an Assisted Living Facility (ALF), while it’s $7,100/month in a Skilled Nursing Facility (SNF), and $3,800/month for a Home Health Aide providing 44 hours per week of care. And because we know that more claims are paid out for care at home and ALF’s than for care in a SNF, we can direct a transfer of risk plan more towards the costs of Home Care and ALF costs than for potentially spending 3-5 years in a SNF.
Another way to position the “Buy-Less Coverage” strategy is “Buying the Gap:” using the information that we can know for sure—for you specifically—such as the total of your Social Security income per month added to your monthly income from your Retirement plan, less the current cost of care, equals what GAP you need to replace. If you were not as aggressive in planning for retirement as you could have been, and your SS income is low, the Gap will be greater than if you had planned early and aggressively, and have a good SS income amount.
To sum up: There is no Right Time or Right Amount for everyone. Only Your Awareness provides You with the information to make the decision that is best for You.
Become Aware, Become Informed.