Many of our parents will need long-term care. Someone will pay for that care or a family member will provide it. 

With the growing need for long-term care, and the escalating costs, economists have coined a new term: “Negative Inheritance”. It’s defined as the financial situation of children who have paid more for their parents care than they will ever receive from any gifts or inherited funds they could have received.

Is there a way to protect our financial security from “negative inheritance”? One strategy recommended by financial advisors is including long-term care insurance as part of the family’s risk management plan. Unfortunately, not all of our parents have financial advisors, and even if they do, the advisor may not be comfortable with a discussion about the importance of integrating LTC Planning with their clients financial and estate plan.

How do we initiate a discussion of planning for long-term care with our parents? We begin by asking the big question: “Have you considered what you would do if you were to need long-term care?” If they say “Yes, as a matter of fact we have,” your response should not be “Great, glad to hear it.” Your response should be “That’s great. I’d like to hear about your plan.” And then listen carefully to see if the plan seems appropriate and practical for their situation.

If your parents have not discussed long-term care, or have given you only a vague idea of what their plan is, don’t panic. Your job isn’t to come up with a plan for them by yourself. Your job is to steer your parents to someone who can educate them and assist them with long-term care planning. Ideally, that person is someone they have trusted with their other financial decisions – their financial planner, CPA, or estate planning attorney. If they haven’t worked with a financial professional before, then you may need to help them find an LTC Planning expert.

Even if your parents feel they have a solid plan for paying for or providing for their long-term care, it would be wise to have it reviewed by a professional specifically trained in long-term care planning.

Before having “the conversation” with your parents, it may be wise to answer for yourself the question you will be asking them: What’s YOUR plan?

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You can’t really know what the appropriate LTC plan is for you until you objectively evaluate all 4 options within the context of your personal and financial situation. In order to do this, we recommend that you seek the services of an Objective Financial Advisor.

What is the difference between an Objective Financial Advisor (OFA) and a traditional advisor? For one thing, OFA’s look for long-term relationships, not sales transactions. But the most important characteristic of an OFA is that they do not sell insurance or financial products. By not accepting commissions, referral fees, or kickbacks, the potential for a conflict of interest is eliminated.

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www.objectivefinancialadvisors.com

According to Health Secretary Kathleen Sebelius, an analysis of the numbers indicated that the program was simply not economically viable. Critics were also concerned that eventually, the majority of people covered by coverage provided through the CLASS act would be those who were too sick to get private coverage.

With an estimated 15 million Americans needing some form of long-term care by 2020, it’s clear that Americans need to seriously plan ahead for paying for long-term care. Ask your financial advisor for advice or seek the services of a long-term care planning and insurance expert.

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Most people mistakenly view “long-term care” as synonymous with “nursing home care”. The myth that a need for long-term care automatically means a nursing home confinement exists because at one time, nursing homes were the first, last, and ONLY option available for people who could no longer live at home. Now, nursing homes are just one of the many environments in an expanding continuum of long-term care.

A person needing long-term care normally progresses through a continuum of care and may entirely avoid a nursing home confinement. For example, older people experiencing the frailties of aging may be able to stay at home because they require only a minimal amount of assistance for a few hours each week. If their condition worsens and they experience problems with maintaining their balance, taking medications, or loss of memory, a move to an assisted living community is normally more appropriate than a move to a nursing home.

Unless the condition worsens, or a terminal illness develops, the need for more comprehensive care in a nursing home will probably never be required. This trend toward helping people avoid nursing home care and receive care in more comfortable settings is a bright spot in the generally somber subject of long-term care.

LTC insurance was initially created to pay for skilled nursing home care needed beyond Medicare’s 20 days of coverage. But over the past several decades, legislation has been passed that requires coverage to pay for all levels of care, not just skilled care, irrespective of Medicare’s benefits.

Two of the main reasons for purchasing LTC insurance are the ability to maintain current living arrangements and remain independent. Having LTC coverage could provide you with the financial resources needed to stay in your home longer or move to the more positive environment of an assisted living community.

LTC insurance may also allow you to have better access to high-quality providers who wish to maintain relationships with insurance companies. LTC insurance companies are beginning to locate and contract with providers who have demonstrated high quality work and ethics. A provider screened and recommended by an insurance company may provide better quality care than caregivers in the general population.

As our society ages, and the demand for care skyrockets, it will be those who can guarantee payment for care with private funds- either their personal assets or coverage from an LTC insurance policy – who will have access to high-quality providers.

For free instant access to a Premium Range Estimator Chart to determine what LTC Insurance will cost you, visit http://www.long-term-care-insurance-advice.com/pre.html

• Confirm their expertise and competence in Comprehensive Financial Planning
• Confirm that no disciplinary action has been filed against the advisory firm.
• Confirm that no complaints or criminal records have been filed against the advisory firm.

The personal financial planning industry has two types of advisors. The first type uses an objective process that benefits their clients. They are only paid by the client for their advice. The second type of advisor is paid commissions for selling insurance, annuities and mutual funds. Too often, these products are not in the client’s best interest. But it’s a primary way these advisors are compensated so a strong conflict of interest exists. Unfortunately, busy people sometimes don’t know the difference between these two types of advisors. Too many people are being sold products that will adversely affect their tax planning or the way their retirement years are spent. The Alliance was created to solve this problem. It consists of a group of independent advisors who have proven their trustworthiness, objectivity, and competence and who comply with a strict code of conduct and ethical guidelines that require them to put their clients’ interests first.

More people than ever are looking to financial advisors for advice because they don’t want to spend their time following the market or keeping up with the constant changes that will affect their estate planning objectives. Handling money is more complicated than ever. During the boom years, many people handled their own finances. When the market did well, everyone was an expert investor. But now that the market has gotten tougher, people are finding that they would rather not handle their money on their own. 

Allen Hamm, creator and Executive Director, created the Alliance after he observed that investors were being misled by some advisors. He has been a consultant to financial advisory firms for 22 years on the subject of long-term care planning. He’s seen the best and worst that can happen to people who have hired a personal financial advisor.

He’s seen unscrupulous personal financial advisors:

• Sell life insurance policies on children.
• Sell long-term care insurance to people who shouldn’t have it.
• Sell expensive loaded investments that erode assets the client had earmarked for retirement.

The due diligence process that Alliance members must pass is his way of making sure more people protect their assets and have the carefree retirement they dream of. All Alliance members abide by a strict code of ethics, which includes a pledge that they will not receive commissions or kickbacks from vendors, including insurance companies.

The Alliance can refer people to an advisor in their area that has passed the stringent criteria required for membership. The referral service is complimentary to investors. The Alliance is paid membership fees by the advisor members. The fees support the advancement of objective financial advice and pay for the occasional referral received through the Alliance.

Investors can make sure they have the right financial advisor by requesting a new, free report called “15 Questions You Must Ask to Assure Your Financial Advisor Is Protecting Your Best Interests.” The report is available at http://www.objectivefinancialadvisors.com.

Also known as the deductible, the elimination period is similar to deductibles with other types of insurance coverage, such as your automobile or homeowner’s insurance. However, instead of being defined as a dollar amount, the elimination period with LTC insurance is defined in days between the time you begin to need care and the time the policy begins to pay benefits. For example, if you need long-term care services, and you had purchased coverage with a 100-day elimination period, on the 101st day of your need for care, your elimination period would be satisfied and the policy would begin to pay the benefit amount. 

The more days that you are willing to pay for your care out of pocket before your policy begins paying benefits, the lower your premium rate. You can choose a variety of elimination periods, ranging from a zero-day elimination period—which would pay benefits from the first day you needed long-term care services—to elimination periods as high as 730 days or longer. There are various methods for calculating how the elimination period is satisfied. Some insurance companies use a calendar day method, whereby your elimination period starts on the day you begin to need care and every day counts, even if you do not receive care every subsequent day thereafter. Other companies use a “days of service” method, whereby an elimination period day must be a day that care was actually received. But in the overall picture of LTC insurance policy design, the method used to satisfy the elimination period is a minor consideration.

In determining the elimination period most appropriate for your situation and how that translates into out-of-pocket dollars, consider two important points:

1. Your risk tolerance philosophy and whether or not you believe in co-insuring a small or large amount of your potential long-term care costs.

2. The average cost of care in your area. Use this figure to calculate your out-of-pocket dollar risk for various elimination periods by multiplying the elimination period by the average cost of care per day in your area.

<i>True</i> long-term care is needing assistance for a period beyond 100 days. Short-term care, care needed for less than 100 days, can normally be paid for without significant hardship to the person receiving the care or their family. In certain instances, a percentage of short-term care may be paid for by your health insurance or Medicare. For these reasons, always concentrate your premium dollars on <i>true</i> long-term care. This means choosing an elimination period of at least 100 days. Some people view LTC insurance as a highly catastrophic type of insurance, and choose elimination periods much higher than 100 days—sometimes up to 730 days or more. We caution however, that this strategy could cause unexpected problems: if a policy’s benefits cannot be accessed until several months or years after the need for care, a policyholder and their family may be tempted to delay quality caregiving that could have been received earlier.

Ironically, the healthy lifestyles and improved medical care most of us are enjoying actually increase the odds of getting that phone call. The longer our parents live, the more likely they will need care.

In past decades, when a parent needed care, other family members stepped in to fill the role. Usually it was the women in the family who assumed the role of primary caregiver. But changes in the “modern” family have made it less likely that children will be in a position to provide care for aging parents. Families today are not only much smaller, but many are spread across the globe, with two careers needed to support the family financially.

How can we avoid going into crisis mode when a parent needs long-term care? By developing a written plan in advance- a plan designed specifically with our parents’ situation in mind. A written plan results from analyzing the implications of relying on each of the options for paying for care. Although most Americans believe that health insurance or Medicare pays for long-term care, in reality, long-term care is provided for or paid for by only four resources:

1. Family
2. Medicaid, the welfare program
3. Personal Assets
4. Long-Term Care Insurance

Developing a written plan requires viewing long-term care as part of our family’s retirement and financial planning. By having a plan, a long-term care event won’t force our parents to deplete monies that were set aside for retirement income and inheritances. Proper planning will also keep them from having to rely on the financial support of their children.

Fortunately, grown children and their parents are finally beginning to feel comfortable having the “long-term care conversation”.

How Do You Have the Long-Term Care Conversation

With Your Parents?

As with most things in life, the first step is the hardest.  How you enter this terrain will depend on you and the nature of your relationship with your parents.

You may not get far in your first conversation, but don’t worry.  It’s a lot to digest, particularly if your parents haven’t given their future much thought.  Be patient.  Find what works for you.  If one approach doesn’t work, try another.  As your parent’s health, finances and lifestyle change so will their needs and views.  Also, laws, financial programs and local options will change.  So revisit these conversations regularly.

To get started, here are a few ways to break the ice:

• Be Open – If you have an open and direct relationship, don’t beat around the bush.  Just come out and tell them that you’d like to talk about these issues and ask if they would mind talking about them.  Everyone thinks about these things.  Everyone worries at 2 AM about what the future holds.
• Be Reflective – Some time when you’re together, ask them about their past, their childhood, and their parents.  Learn more about them.  Then move on to the future.  What do they want most?  How do they perceive the future?  What worries them?
• Discuss Someone Else’s Situation - Chances are that you or your parents know someone who is already dealing with some aspect of aging or long-term care.  Talking about what’s good or bad about their situation can be a useful launching point.
• Ask for Advice – This is a great way to get the discussion rolling.  Tell them that you just entered into a relationship with a financial advisor and that you’re starting a retirement account or preparing a will.  Then ask them for advice.  Follow that by asking how they planned ahead and if they feel fully prepared.
• Grab an Opening – If, for example, your mother is talking about Aunt Kathy, who’s in an assisted living facility, and rolls her eyes and says, “Don’t you ever put me in one of those places,” ask her what she means.  What would your mother want in the same circumstance?  If you miss the chance, bring it up another time.  “Hey Mom, remember when we talked about Aunt Kathy and you said “Don’t you ever put me in one of those places”? . . . . . . . .
• Write – If you find the whole thing too daunting, write a letter or e-mail outlining your concerns and what you would like to discuss.  This can be particularly helpful if you live far away and only have a weekend to have these talks.  You can pave the way and get them to start thinking about it before you get together.
• Get Help – Maybe you have a sibling who is more at ease talking with your parents.  Maybe your parents are more comfortable talking to someone else in the family about finances or health.  Don’t be offended.  You don’t care how the plan gets developed, just that it DOES get developed.

The simple e-booklet, “Five Steps to Understanding Long-Term Care” provides some basic information about the issue of long-term care and is a good way to introduce a discussion with your parents. The booklet is complimentary.

The fastest way to understand long-term care!

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Group LTC coverage is becoming a common option in the workplace. The employee usually pays the entire premium, but the insurance company trains the employer to “sell” the concept to their employees as a value-added benefit to being employed by the company. This is also NOT true.

Group coverage can also be purchased through associations such as AARP, or through “captive” agents who work for only one insurance company. In fact, a new twist in coverage offered through AARP, is using “captive” Genworth agents. These captive agents work directly for this one insurance company – they are not independent brokers. They’re taught how to sell this one insurance carrier’s insurance, with the commission being split between the captive agent and AARP. Group coverage can also be purchased on the internet, through the mail, or over the phone. Is this new trick – Group LTC Insurance – a good value? The short answer is: No, unless you’re in poor health.

Adverse Selection

Individually issued LTC coverage offers a better value than group LTC coverage. Why? Unlike most types of group coverage, group LTC insurance is usually MORE expensive than individually issued coverage. This is because group LTC insurance is normally issued to individuals who would not otherwise pass the typical underwriting requirements of the insurance carrier. This is called “Adverse Selection” and the result is a much higher than average number of claims. Because insurance companies know they’ll have a greater number of claims with group LTC insurance, they charge a higher premium.

In future years, adverse selection will also cause premium rates to be raised more frequently than premiums for individually issued policies. In fact, rates on older group policies, such as coverage issued through CalPers, are already being raised to the point where some families are canceling the coverage. The consequences of adverse selection spell bad news for healthy people who purchase group coverage: They subsidize the current premiums as well as the more frequent premium increases caused by the claims of those in poor health.

“But the Premium Seems so Low!”

 Group LTC coverage can appear to have a much lower premium than individually issued coverage.  Buyer beware! Read the coverage details. Understand the eligibility criteria. Compare these details and the benefits apples to apples with coverage that could be available on an individual basis.

For example, most group coverage does NOT offer the automatic inflation protection benefit as part of the base policy. Instead, what’s offered is an “Increase Option”, which offers the right to purchase additional coverage in the future, at of course, a much higher premium rate.  This option has the appearance of inflation protection, but on closer examination, you’ll see that the coverage does not include automatic inflation protection!

Unfortunately, the “appearance” of a lower premium with group coverage has given thousands of policyholders the illusion of security — the belief that they’ve properly planned ahead for long-term care. These policyholders will end up with no meaningful long-term care insurance in force when they’re likely to need it the most. They’ll either be forced to drop the coverage because of increasingly higher premiums; or, if they keep the coverage in force, will learn that the benefits they purchased are inadequate.

Is Group LTC Coverage Ever a Good Value?

 There is one situation where group coverage is worth considering. If you are unable to qualify for individually issued coverage due to health problems, you may want to consider any group coverage available to you. In this situation, work with your financial advisor and an LTC Planning and Insurance expert they recommend to weigh the pros and cons of the coverage, and to assist you with evaluating your options.

Pros and Cons

Purchasing group LTC insurance without first understanding all the pros and cons of the decision is one of the worst financial planning mistakes being made today. One of the reasons for considering LTC coverage at a younger age is to have a reasonable premium later in life. But this

will not be the case with group LTC insurance: Premiums are higher from the beginning and will be continuously higher in the future.

Group coverage has the potential for creating false security and may cause people to “start over” with the LTC Planning process at older ages. Unfortunately, at that stage in their lives they may no longer be able to qualify or afford the premiums for the coverage they need. See the accompanying chart for a summary of the advantages and disadvantages of group LTC insurance. If you are offered group coverage, speak with your financial professional and/or call us before you sign the paperwork.

The above article was taken from Chapter 17 of my book, “How to Plan for Long-Term Care.”  To receive the complete chapter by email, complete the information below.

 Staying active physically: Even a minimum level of daily physical activity makes a significant difference.

• Walk instead of driving whenever you can
• Garden or do your own yard work

Socializing: Spend as much time as possible with family and friends. Become involved in activities that include others.

• Join a club
• Volunteer

Eating with others: Research has shown that having meals with other people offers mul­tiple benefits such as eating more nutritiously and the opportunity to socialize.

• Host informal potlucks for family and friends
• Join a cooking club or gourmet club

 Continuously learning: Challenge your mind daily to reduce the odds of needing care due to mental problems, including loss of memory.

• Stay up-to-date on current affairs
• Work crossword or other types of puzzles
• Write letters

Click on the link below for a short assessment form that will give you an idea of what your odds are for needing long-term care.

Personal Odds of Needing Long-Term Care