Category: Long-Term Care Insurance

When it comes to financial planning, long-term care (“LTC”) is a life event that often doesn’t get the recognition it should, given its likelihood and substantial cost. So, in last month’s article, I examined three LTC funding methods:

1. Medicaid, a government program that assists low-income people. If you’re thinking about Medicaid as your LTC funding source, consider factors like (a) you may have to spend down your assets to qualify and (b) Medicaid’s coverage is limited in several ways. Given its drawbacks, Medicaid is generally viewed as the last-resort option for LTC.
2. Self-Funding, where individuals use their own assets to cover LTC expenses. To determine if Self-Funding is right for you, consider factors like (a) you retain the risk of paying exorbitant LTC expenses and (b) you risk selling assets in a market downturn, creating long-term consequences for your retirement funds. Given its risks, Self-Funding is viewed as suitable only for wealthy individuals.
3. Traditional LTC Insurance, which pays a monthly, tax-free benefit for LTC expenses. This method has advantages over Self-Funding and Medicaid, most notably (a) it transfers financial risk to a private insurance carrier and (b) it covers a wide range of LTC services, from home health care to nursing home stays. Unfortunately, such products have two defects that make them unpopular:
   1. First, insurance carriers periodically increase the premiums to account for changes in the projected cost of claims. Some policyholders can’t afford the unexpected rate increases, forcing them to reduce – or even cancel – their coverage.
   2. Second, Traditional LTC Insurance has a “use it or lose it” structure, so policyholders may spend a lot on premiums… and never receive any benefits.

This month, I present a fourth funding method – one that incorporates the positives of Traditional LTC Insurance… and addresses its deficiencies.

Hybrid LTC Insurance combines Traditional LTC Insurance… with Life Insurance. It pays a monthly benefit for LTC expenses and a lump-sum benefit when the policyholder dies. Since the death benefit includes any unused LTC funds, Hybrid LTC Insurance solves the aforementioned “use it or lose it” problem. One way or another, your premiums will produce substantial benefits! Furthermore, since the premiums are locked when the policy is issued, this product removes the above concerns over unexpected rate increases!

Financial planning for LTC requires thorough consideration. The sooner you build (and execute) your strategy, the better you’ll be prepared. Before you speak with an LTC specialist, here’s a list of questions to help you decide which funding method is best for your needs and objectives:

1. How badly would you reduce your assets to pay for LTC?
2. Based on your family’s – and your own – health history, can you foresee a need for extended home health care?
3. Do you have sufficient earnings and retirement savings to afford the cost of LTC without insurance?
4. Would you be willing to deplete your estate to pay for LTC? Do you have other plans for the money you’ve saved?

For more information, my email address is insuritystreet@gmail.com. The consultation is free with no obligations.

When it comes to financial planning, long-term care (“LTC”) is a life event that often doesn’t get the recognition it should, given its likelihood and substantial cost. So, in a previous column, I gave you an overview of LTC and emphasized the need to plan for it. Here, I continue the focus on LTC by examining three methods to pay for it.

Medicaid is a government program that assists low-income people. Aside from offering health care benefits, it’s the country’s largest provider of LTC payments. If you’re thinking about Medicaid as your LTC funding source, consider the following:

• YOU MAY HAVE TO SPEND DOWN YOUR ASSETS TO QUALIFY FOR MEDICAID.
• MEDICAID’S LTC COVERAGE IS LIMITED. For example: (1) It typically excludes LTC at home, which is significant since older adults prefer to age in place; (2) Only the lowest-grade nursing homes accept Medicaid, which is noteworthy since older adults consider quality healthcare a top priority.
• MEDICAID MAY GO AFTER YOUR ESTATE TO RECOVER THEIR COSTS. In general, a state can do this in two ways: (1) Seek repayment from your estate after you die; (2) Place a lien on your property while you’re alive.

Given these drawbacks, Medicaid is generally viewed as the last-resort option for LTC.

On the other end of the financial spectrum, some individuals use their own assets to cover LTC expenses. To determine if Self-Funding is right for you, consider the following:

• YOU RETAIN THE RISK OF PAYING EXORBITANT LTC EXPENSES.
• YOU MAY HAVE TO USE THE ASSETS YOU SET ASIDE AS AN INHERITANCE TO YOUR CHILDREN, GRANDCHILDREN, AND OTHER LOVED ONES. If your financial legacy is important, you should choose a different funding approach.
• YOU RUN THE RISK OF SELLING ASSETS IN A MARKET DOWNTURN, CREATING LONG-TERM CONSEQUENCES FOR YOUR RETIREMENT FUNDS. By selling low, your remaining funds will have a difficult time achieving the growth you need for a lasting retirement income.

Traditional LTC Insurance has advantages over self-funding and Medicaid. Most notably: (1) It transfers financial risk to a private insurance carrier; (2) It covers a wide range of LTC services, from home health care to nursing home stays; and (3) The benefit payments are income tax-free. Unfortunately, such products have two defects that make them unpopular:

• PREMIUM INCREASES. Periodically, insurance carriers increase the premiums – sometimes dramatically – to account for changes in the projected cost of claims. (Side note: Such increases must be approved by state regulators and must apply to a group of policies with similar characteristics.)
• “USE IT OR LOSE IT”. Policyholders who go through life without needing LTC will never receive any benefits. Instead, the insurance carrier keeps the premiums to pay for other people’s claims. (Side note: Most insurance products have a “use it or lose it” structure. The premiums aren’t meant to generate an investment return. Instead, they afford meaningful protection against potential financial losses.)

Next time, I’ll present a funding method that incorporates the positives of Traditional LTC Insurance… and addresses its deficiencies. In addition, I’ll provide a list of questions to help you determine which LTC funding option is best for you!

When it comes to financial planning, you know about core elements like saving for retirement and preparing for an unexpected death or disability. However, there’s a life event that doesn’t get the recognition it should, given its likelihood and substantial cost. So, in this article, I provide an overview of long-term care and explain the need to plan for it.

What is long-term care (“LTC”)?

LTC encompasses a variety of services designed to meet the medical and non-medical needs of individuals who can’t perform Activities of Daily Living such as bathing, dressing, eating, and toileting.

Who needs LTC?

LTC is primarily for individuals facing health issues like Alzheimer’s disease, arthritis, diabetes, heart attacks, osteoporosis, and strokes. The likelihood of needing LTC is influenced by factors including age, gender, marital status, lifestyle choices (e.g., obesity, smoking, excessive drinking), and family medical history.

Where can I get LTC?

There are two primary settings in which you can obtain LTC:

1. In the comfort of your home by a family member, friend, home healthcare aide, or nurse.
2. Assisted living facilities, memory care facilities, or nursing homes.

Why should I plan for LTC?

Planning for LTC is essential for several reasons:

1. It enables you to make decisions while you’re still able to articulate your preferences. By planning ahead, you improve your chances of maintaining independence and receiving quality healthcare. Additionally, planning reduces the risk of depleting your assets and income, ensuring financial stability throughout the LTC journey.
2. LTC planning also alleviates stress on family members, as it prevents them from being thrust into the caregiver role. According to studies, family caregivers often experience decreased energy, patience, and time to care for themselves and their immediate family. They also tend to provide out-of-pocket financial assistance to support their loved one’s care. Finally, the family member’s career can be adversely affected, since assuming caregiving duties can lead to reduced productivity, increased absences, and other work-related challenges.
3. The final justification for LTC planning is the prevalence and cost of LTC, which tell an alarming story. Approximately seven in 10 individuals who reach age 65 will need LTC in the future. Moreover, the average length of time that people use LTC services is three years. Finally, as an example of how expensive LTC can be, the estimated local cost of a semi-private room in a nursing home exceeds $12,000 per month. (Even the average cost of a home healthcare aide is more than $5,000 per month in this area.)

LTC is for individuals who can’t perform Activities of Daily Living such as bathing, dressing, eating, and toileting. The chance of needing LTC in retirement is high, and the cost of it is substantial. LTC planning improves the likelihood of maintaining independence, receiving quality healthcare, and protecting your financial well-being. You can also spare loved ones from the burden of caregiving, which is known to have adverse effects. For more information on LTC, my email address is insuritystreet@gmail.com. The consultation is free with no obligations.