Incapacity Planning – “What if I Can’t Take Care of Myself?” – Long-Term Care Insurance

When people think about estate planning, people immediately think of what will happen to their property after they die. But estate planning covers much more than that. A competent estate planner will also counsel clients to plan for incapacity. Incapacity is when a person is unable to make financial and/or health care decisions for themselves. Incapacity can be caused by accident, disability, illness, or old age. And the fact is, in today’s world and with today’s medical interventions, the chances are that any one of us will be incapacitated at some point, either temporarily or permanently. In fact, the U.S. Department of Health and Human Services estimates that 70% of people currently turning age 65 will need long-term care at some point. So, how should you prepare?

This is the fourth in a series of five posts on incapacity planning tools available in Minnesota including Power of Attorney, Health Care Directives, Long-Term Care Insurance, and Business Succession Planning.

Long-Term Care Insurance

Let’s get one thing straight right away: I don’t make any money off of Long-Term Care Insurance. I can’t sell the insurance myself and, as a lawyer, I’m not allowed to accept any kickbacks or referral fees from insurance companies. That being said, Long-Term Care Insurance is still a valuable tool and I often recommend that clients over age 45 look into it. Why?

Chances are that the day will come when you won’t be able to manage on your own – an estimated 70% of those over age 65 will need some kind of long-term care. Long-term Care helps pay for the assistance you would need with daily living tasks if a chronic illness or disability leaves you unable to care for yourself for an extended period of time. It includes both assistance in your own home or in a specialized facility like assisted living or a nursing home. The Minnesota average cost of full-time nursing care is around $80,000 per year for a private room. That can run through a retirement nest egg pretty quickly!

Clients I counsel often don’t understand the limits of their medical insurance and government benefits. Private medical insurance and Medicare only pay for doctor and hospital bills. Medicare will pay for skilled nursing care for up to 100 days if requirements are met, but that doesn’t help much if you’re going to need on-going care. If you need skilled nursing care over an extended period and don’t have your own coverage, you have to spend down your assets significantly to qualify for Medicaid/Medical Assistance coverage. In Minnesota, asset limits can be as low as $3,000 for a single person who needs care.

Long-term care insurance is designed to help you pay for home health services, assisted living facilities, memory loss care, nursing homes, and adult day care. The policy usually starts to pay for care when you are unable to perform two of the six activities of daily living (known in the medical field as “ADLs”: continence, dressing, toileting, eating, bathing, transference into or out of bed) without assistance or supervision. Policies vary according to provider, but generally have both a maximum monthly benefit and an overall cap on benefits. Even so, this insurance can save you tens of thousands of dollars in care costs over a relatively short period of time. Some “hybrid” policies provide an alternative death benefit in the event you die before you can use benefits.

Policy premium costs can be spread out over a period of years or paid in a lump sum. The earlier you purchase a policy, the cheaper it is and the more likely that you will qualify for coverage. Most people in their fifties can qualify and get advantageous pricing, while those who wait until their seventies are much more likely to be denied and must pay more. I encourage clients who are approaching retirement to look into coverage promptly.

So, now I’ve planned for my financial and medical needs, but who will manage my business? Next time I talk about business succession planning…