Secrets of long-term care insurance

June 10, 2014 

"Medicare pays for long-term care, doesn't it?" asked Burt, a long-time client of mine in his sixties.

"Well, actually, no," I said.

"Long-term care is expensive, and what happens if I pay for premiums and never use it?"

"Yes, premiums can run over $3,000 a year, and if you don't use the policy, you forfeit all money spent on premiums," I said.

"So I could blow sixty grand, or more, if I never use the policy?" he asked. "Maybe I'll wait and buy the policy closer to when I need it."

"Burt, here's the rub: Most insurance companies, unfortunately, won't issue a new long-term care policy once you're diagnosed with significant heart issues, strokes, or dementia. The insurance companies will only issue a policy if you're healthy.

"Just think about it. A stay in a decent nursing home in Bradenton costs about $7,000 a month or about $84,000 a year.

"Do you really think a company is foolish enough to insure a high risk individual for a one year premium, of, say, $4,200, knowing they'd be on the hook to pay hundreds of thousands of dollars to the Inn at Freedom Village or Westminster to bathe, dress, and give you medical care?"

"Of course not," snapped Burt. "Well, I'll just go on Medicaid then."

"Medicaid is usually for the poor, Burt. You have a wife, a paid-up house, and about a million in investments. Burt, for you to qualify, you have to spend

down your assets to your last $2,000. Your wife can keep the house and about $117,000, though."

"Ugh," Burt sighed "I'll just give all my money away to my kids; they're going to inherit it anyway."

"Wrong, again" I said. "The government reclassifies and disallows all transfers made in the previous five years. You'll have to wait longer or fail to qualify for Medicaid."

"Fine. My wife will take care of me."

"Okay, so let me get this straight. You get Alzheimer's. You are bedridden. You're incontinent. You can't move. And, then, you expect your wife in her golden years to selflessly lift you out of bed, change your Depends, bathe you, cook for you, and drive you to doctors? What are you going to do if she gets sick, too? What if she dies before you?

"No problem. My son and daughter will take care of me."

"Are you kidding me? They're busy managing careers, running homes and taking kids to soccer practice."

"Jim, I think you're right, and I can see where this is going. I have some CDs earning barely one percent. Chances are I don't need this money to live because I have social security and some pensions. Maybe I should buy the long term care to be safe. The money is just sitting there. "

"Exactly," I said. "Burt," here is a long term care proposal for you to examine," I said. "Is it all right to check in with you next week to see if you'd like to proceed?"

"Jim, I haven't had time to review the long-term care proposal you gave me," said Burt when I called the following week. "It sure seems expensive. I'll get back to you. "

He' probably not interested I remember thinking when I gave Burt another follow-up call. "I've been real busy and I haven't had a chance to review it," he said.

Six months later, however, Burt called me. "Jim, I've thought it over and I'd like to get some long-term care insurance now."

"How's your health Burt?"

"I feel good, but I've been diagnosed with Parkinson's."

"Sorry to be the bearer of bad news, but none of the long-term care companies I represent will insure you because of the Parkinson's. Remember insurance companies usually only write long-term care when you're healthy."

I haven't seen Burt for awhile, but I saw his wife Bonnie recently. She looked awful, and told me she was stressed-out caring for Burt and taking him to doctor appointments. Obviously she wasn't enjoying early-bird specials, golf, and cheap cruises.

Moral of the story? If you need to buy long-term insurance, buy it when you're healthy.

Jim Germer, a Bradenton CPA and a financial advisor with Cetera Financial Specialists, can be reached at (941) 746-5600 or jim.germer@ceterafs.com.

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