It’s probably the last thing on your mind if you are considering or going through divorce. But don’t forget to consider long-term care insurance, when you are working on the settlement agreement. I typically advise middle-age and senior couples getting a divorce to explore long-term care coverage options as part of the divorce process.
Being financially ready for the possibility that you could require long-term care is an important part of general retirement planning. Yet, too many people hope for the best, wait too long or don’t give this much thought, especially if they are divorcing. Our rapidly aging population, lengthening longevity and unpredictable health care costs highlight the need for long-term care insurance.
Statistics show that 70 percent of those who reach age 65 will need long-term care. Also, accidents, debilitating illness and permanent injuries can happen at any age. In addition, many people should know that Medicare does not cover long-term care. And Medicaid only kicks in when you’ve exhausted most of your assets. Medicare and Medicaid also limit benefits for specific services or require additional criteria to be satisfied before approving or paying benefits.
In-home care or assisted-living care is expensive (up to $250 per day) and most experts believe costs will only go up. The average cost of a nursing home ranges from $85,000 to $120,000 a year; hiring an aide to spend six hours a day in your home starts at around $40,000 a year. Considering some method of long-term care insurance or savings has become a key strategy for preserving assets, especially for women. However, buying long-term care insurance requires research on your part.
You must do your homework on plans, features and companies. Read and understand the fine print of policies. Choose a reputable company with a Moody’s ranking of “A.” Ask a Certified Senior Financial Advisor, not the same person who sold you the policy, to review the policy’s provisions. Here are some general guidelines to consider when shopping for a policy:
- Find out how the “elimination period” works before you buy a policy. An Elimination Period is similar to the deductible on other insurance policies. You can lower your premium by choosing a longer elimination period. Carefully consider how long you can afford to pay your expenses, including medical expenses, before you decide on the length of your elimination period.
- Look for a policy with set premiums. That way, if you buy a policy when you’re 55, you’ll pay the same premiums at 75.
- Make sure the policy is “guaranteed renewable for life.” Otherwise, the insurer could cancel when it looks like you may actually use the benefits.
- And insist on an inflation clause that boosts how much the insurer will pay as nursing-home costs climb.
- Look for a policy that covers home health care costs. Most older people prefer to remain in their own homes, if possible.
- Try to get “protection from lapse,” which can provide for third-party notification in case of a missed premium payment, or reinstatement if there is proof that the lapse was unintentional due to a cognitive impairment.
- The policy should cover cognitive impairments such as Alzheimer’s, when a patient may be otherwise physically healthy, but still need long-term care.
- There should be a provision waiving premiums once you’re in a nursing home.
- To save money, buy coverage for three to five years with a daily payment of at least $150, pegged to the national average cost of nursing-home care. Lifetime benefits are much more expensive.
- Consider exploring life insurance policies that offer flexible long-term care benefits riders. This may be a lower cost alternative that lets you use all or some of the funds that the life insurance would have paid to your loved ones to help cover your long-term care expenses. Then, if you don’t use this coverage for long-term care services, your loved ones will receive the policy’s unused value at your death. Long-term care policies only cover expenses if you require long-term care; there is no pay out upon your death.
For those who haven’t yet bought a long-term care policy, keep in mind that premiums for long-term care insurance increase as you age. And since there is a discount for purchasing while married (no one checks to see if you remain married), it is in your best interest to establish coverage prior to a divorce settlement.
Join Patricia Barrett at upcoming Houston Leisure Learning classes on Oct. 27. She will also be presenting at the Guide to Good Divorce seminars in Houston in 2015. For more information on divorce financial planning or divorce mediation, visit Patricia’s website, Lifetime Planning.
The information in this column is provided as a guideline and offers a general information. For more specific details on these topics, please consult a Board Certified Family Law attorney or a Certified Divorce Financial Analyst.