True Story Backs up MetLife's Study on the Cost of Being a Caregiver

MetLife recently published a report called “The MetLife Study of Caregiving Costs to Working Caregivers.” The study found, that on average, a working caregiver loses a total of $324,000 in terms of wages lost, and a decrease in Social Security benefits. 

Many people would look at that figure in disbelief. It IS a lot of money. I probably would have done the same, if I hadn’t recently spoken to a friend, who I’ll refer to as Trudy. Trudy and her husband are true budgeters and planners. Every year they go to their financial planner to make sure they are on track with their goals. Originally, the plan was to have Trudy go back to work once their 2 children were out of elementary school. By working for 6 years, both she and her husband would be able to retire before they turned 55.

You know how they say “life has a way of happening…...” By the time her children were in Junior High School, Trudy’s mom was in her late 80’s and developing signs of dementia. Trudy stepped in and for the next several years provided the care her mother needed until she passed away.

Their financial planner calculated that Trudy and her husband lost $325,000 over the years Trudy cared for her mom. It would appear from their experience that MetLife’s findings were, if you’ll allow me a pun, “right on the money.”

Why Long-Term Care is a Women's Issue

Having a written long-term care plan is important for every family in America, but particularly for women. Almost always, the female takes ultimate responsibility for the day-to-day care of a family member who is ill or disabled. In our years of working with financial professionals to assist families with LTC Planning, I have personally listened to the stories of women whose lives have been totally altered due to the long-term care needs of a loved one. Similar stories involving men are also becoming more common. But the majority of informal caregivers in our country -- almost 72% of the estimated 7 million providers of care -- are female.

Women tend to be more comfortable and skilled in the role of caregiver, especially if they’ve also had children. But providing care comes at a heavy price: with the accompanying emotional and physical stress of being a caregiver, a woman has a 63% higher risk of dying earlier than a woman of the same age who does not become a caregiver.

But the prospect of becoming a caregiver should not be the only reason for women to ask their financial professional about LTC Planning for their family—it’s also vital that they plan for their own care. Women make up the largest percentage of residents in all types of long-term care facilities, with the majority being widowed or divorced. Because women usually marry men at least a few years older than ourselves, and live about seven years longer than men, by age 85, only 13% of women are still married.

By contrast, men make up the majority of people being taken care of at home. Normally, a wife or daughter helps her husband and parents through to the end. But her resources are limited when she needs long-term care. Unable to rely on informal, unpaid care from relatives at home, older women are usually forced to rely on more formal and costly solutions, such as a nursing home.

Choices for women were limited in earlier generations. Thankfully, they now have access to the knowledge and resources needed to actively participate in planning ahead for their family’s well being. Women will always be “caretakers,” but their role today includes careful advanced planning for the potential long-term care of their loved ones and themselves. If they don’t proactively plan ahead, the comfortable and healthy retirement women envision may be greatly altered, and even cut short by the consequences of providing or receiving long-term care.

How to Save Money on Your Long-Term Care Insurance Premium

Long-term care insurance has a reputation for being expensive, especially for people who waited until they were in their 60’s or 70’s to investigate coverage. But there are ways to lower your premium amount without sacrificing significant benefits. The elimination period is the most practical way to save money on your premium. For example, an elimination period in the range of 100 days can save a significant amount of premium dollars over a lower elimination period.

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.

True 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 true 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.

Bundled Insurance Products: Don't Think You're Getting Something for Free

Policies that combine life insurance and LTC insurance are referred to by different names including "Combination policies," "Bundled Policies," or "Accelerated Death Benefit Policies."

This type of policy is a life insurance policy with an LTC insurance rider that can be used to pay for long-term care expenses. In other words, instead of having to die to receive benefits, the policy could pay benefits to cover the cost of your long-term care expenses.

The attraction is that you can own insurance coverage, and always be assured that a benefit will be paid. Agents selling this type of insurance usually emphasize that "If long-term care is not needed, at least your beneficiary will receive benefits from the life insurance portion of the policy."

It’s enticing and can make it seem that you’re getting something for free – but we all know insurance companies do not "give away" insurance. With this type of policy, you are actually paying for two types of insurance coverage, whether you need both types or not: life insurance and long-term care insurance.

If you use the long-term care portion of a $150,000 life insurance policy, coverage is reduced proportionately. For example, if you use $75,000 of your benefit for long-term care expenses, your beneficiary would collect only $75,000 at your death. But you’ve paid a premium for $150,000 in life insurance benefits, as well as a premium for the long-term care insurance benefit.

It’s best to evaluate each of your insurance needs separately. If life insurance is appropriate, purchase the best life insurance value for your particular situation. If life insurance is not appropriate, then don’t purchase it at all.

The same is true for LTC insurance: If LTC insurance is appropriate, purchase the best LTC insurance value for your particular situation. If LTC insurance is not appropriate, don’t purchase it at all.

In other words, "bundling" more than one type of insurance in the same policy normally results in a poor insurance value.

Unless You're in Poor Health....Avoid Group Long-Term Care Insurance

The LTC insurance industry is up to a new trick: Marketing LTC insurance through groups. The industry “advertises” that group LTC insurance is a better value than individual coverage. We’ll explain later in the article why this is simply NOT true.

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.

Tips for Reducing Your Odds of Needing Long-Term Care

Taking a proactive approach toward life is the key to reducing your odds of needing long-term care. Improve your chances of liv­ing a long, healthy life and lower your odds of needing care by:
 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 personal odds are for needing long-term care.

Your Personal Odds of Needing Long-Term Care