Nursing Home and Home Health Care in retirement.
Now, there is no doubt this is a major discussion to be having for those getting close to retirement. Should I begin to invest in a standalone nursing home policy or Home Care policy before retirement?
Hello, my name is Dave Duley a registered Fiduciary and Lead advisor for Georgia Advisory Group here in North Atlanta. In 1983, almost 40 years ago, I cut my teeth in this exact field of Medicare and nursing home coverage before entering into the money management arena.
In those days, there were no options available to even consider buying an insurance policy. Medicare supplements had just come into existence and nursing home care and Home Care insurance were still unheard of at that time. Now, if we fast forward to the late 80s early 90s insurance companies began to price policies that would cover a certain per day amount for a certain length of stay. Most would have a deductible. No different than your car insurance or homeowners insurance policy.
It worked a little something like this. You could buy a $100-a-day policy for a three-year length of time with a 30-day deductible. But what this meant to you was after you had been confined for 30 days consecutively in a nursing facility, your policy would pay you $100 a day for three years or 36 months. Now, the average cost was around 450 a year in premium back then. The idea was you weren’t going to be in there that long. The average stay before passing was less than 18 months. Or that’s what they thought. But what took place, in reality, was completely different.
In addition, these insurance carriers had no real actuarial numbers to anticipate costs versus premiums to charge the person. And its competition for policies grew coverage got crazy. Meaning you could buy a policy that would not only pay for a lifetime, stay in a nursing facility, but would have an inflation Rider built in where the daily benefit would increase each year up until the time you needed coverage. Now, the great news for the buyer was the fact that these policies were getting better, but the bad news for the insurance company trying to not go bankrupt with these future obligations.
What happened over time was most of these carriers either went into receivership or discontinued any such policies. They just didn’t have enough history to determine the pricing. Home Care became then the most popular type of coverage. It was way more cost-effective and most people just needed care for a shorter period from recovery from a hospitalization. And numbers showed they would recover faster in their own home versus a nursing facility anyway. But today, either option still is very costly. The average cost per person today runs around $1850 to $2500 a year for basic coverage. The main difficulty is even qualifying to get coverage without being rated.
Meaning that if you apply once they do a medical background, they add additional costs because you’re taking medication or you’ve had a pre-existing condition. That’s why applying early is the key. And secondly, the other option is trying to self-insure using current assets that you currently have versus purchasing a policy.
Now, one option today is life insurers, Now that sounds nuts but many policies today offer an option that if you need help and can show you have met what is called ADLs or Activities of Daily Living such as I can’t bathe myself, I can’t dress or you need help to walk. These policies will let you draw down your death benefit while you’re recovering.
Now, I’m not a huge fan of life insurance except for covering or paying down debt. But if I can have the best of two options life insurance plus part of the policy where it will pay me to be in a nursing facility. Then it may make sense for you, especially if I can use it while I’m still living. In addition, having an annuity that pays you a lifetime income can also provide an accelerated benefit of doubling your income while confined to a nursing facility. Or again, not being able to perform activities of daily living. If I have an IRA that I’m drawing a required minimum distribution on I may be better off moving it to an annuity that will provide me with a lifetime income and double my income if I needed a nursing facility or needed help at home. One, I don’t have to qualify for the benefit and two I’m not paying a premium.
I’m just reallocating money already in my possession to kill two birds with one stone. The income I need, and insurance for home care and a nursing home. Now I would tell you that buying your policy is a great idea. In your early 50s or younger, after that, I would choose to self-insure with the last two suggestions that I just made. The reasons are pretty clear the cost to even qualify today after age 55 for a policy is difficult and again, you may never need the policy in your lifetime and it’s expensive. Secondly, my other two options that I mentioned give me the best of both worlds where I save on premiums, but I benefit from dollars that will be used either for me or my heirs, uh like life insurance that will always pay off. And the annuity benefit from me and my spouse whether we use it, uh you know during a nursing home stay or for income.
Listen, I hope this helps you decide what may be in your best interest. If you’re not sure what’s the best option, then go to my website below and complete the form providing your information. And we will do a deep dive to figure out the best road to take. Again, click on Subscribe, to get or you know to enroll in our newsletter and get informed when our next video is going to be posted, till next time