During the earning years in one's career, smart workers recognize that loss of income because of illness, accident or injury could be devastating to themselves and their families. In fact, MetLife studies show that:
- One in three working Americans will become disabled for 90 days or more before age 65.
- The average disability absence is 2 1/2 years.
- An individual's chances of disability are two to three times greater than death during their working years.
The risk of that potential loss of income is transferred by purchasing disability income insurance. For those who do have this protection in place, their plans will replace half to two-thirds of their salary, if they are too sick or injured to work. DI helps pay all the fixed monthly bills, including food, utilities, house and car payments, as well as those other expenses most families have, such as tuition and retirement funding.
The missing piece of the financial puzzle
What many people do not realize is that, along with the disability, may come the need for assistance to perform the normal activities of daily living -- bathing, dressing, eating, transferring, toileting and continence. These extra, unplanned expenses for assistance may be for only the brief period of recovery or the long-term, if the disability is permanent. Planning ahead for this possibility is the piece of the financial puzzle that is most often missing.
The product that provides this extra pool of money is long-term care insurance. It is designed specifically to pay for the extra ordinary expenses incurred by hiring assistance to help with the normal activities of daily living. LTCI is often called the DI enhancement product. It is best to purchase it at a young age, while perfectly healthy, because premiums are determined by those two factors.
Purchasing LTCI to fit with DI has an added benefit. When designed for use both during working years and into the retirement years, the policy can be set up to not only reimburse care-giving expenses, but also provide cash to offset some of the fixed monthly bills. Purchasing a plan with both benefits not only protects the savings and assets, but provides an additional source of income for those retirement years in which caregiving assistance is needed.
Plan designs to fit individual needs
The following case studies illustrate a few of the other ways an LTCI plan can work, providing flexibility for different life situations.
>> A 44-year old divorced woman purchases an LTCI plan with the option to restore any benefits used. A year later she is in an automobile accident and suffers neck and back injuries. It takes her two years to fully recover. She uses $108,000 of her policy benefits, but because she purchased the restoration benefit rider, that sum is replaced in her policy so she has full benefits available for her retirement years.
>> A 35-year old man purchases an LTCI plan that provides $12,000 a month in reimbursement for anycare-giving expenses. Included in the plan is the option to receive 40 percent of this benefit in cash, without having to submit receipts. At age 42, he has a bad skiing accident and it takes nine months for him to fully recover. His DI replaces two-thirds of his salary. His cost of care during the recuperation period runs him $3,000 a month. He receives a check for $4,800 (40 percent of the $12,000 monthly benefit), which he uses to pay both for his care and other bills. During the period of policy use, no premiums are paid. Once the man has recovered and is back at work, the premiums resume and the policy remains in effect for later use.
>> A 50-year old professional purchases a cash LTCI policy. At age 59 he has a stroke. Rather than have his wife try to take care of him and risk her health, they hire a young nephew, who moves in and provides the caregiving assistance needed. The cash plan only requires initial proof of need of services; unlike reimbursement plans, which stipulate that a trained, professional caregiver must be used.
A matter of when, not if
During one's lifetime, the need for caregiving assistance is more a matter of when, not if. By adding long-term care insurance in the financial plan, this cost is covered both during the working years, by enhancing the disability income insurance and protecting against spend-down of savings, and during the retirement years, protecting the retirement nest egg and possibly even supplementing retirement income. Have your clients completed their financial planning puzzle?
Judy Hoyt Pettigrew, CLTC, has been partnering with producers for 10 years to provide long-term care solutions for clients. She can be reached at LTCMOM@cox.net.