Simplifying Planning for Long-Term Care
While it may be many years away, the best time to start thinking about long-term care is before you or your loved ones need it. When most people think of long-term care, they think of nursing homes, but it can encompass much more than that. It also means home health care and personal care, as well as help with chores and daily living tasks. Long-term care services help people live as independently and safely as possible when they can no longer perform everyday activities on their own.
Wealth Management by CommunityAmerica recently held a webinar on the topic to help our members understand the impacts of long-term care, how the right long-term care plan can help protect your retirement savings and what to look for in a long-term care insurance policy. You can view a recording of the webinar here. Additionally, the presenter, Rich Kupetsky, has summarized some key points to consider when engaging in the long-term care conversation, below.
Having a plan in place now can provide peace of mind for the future. When you are ready to engage in the long-term care discussion, we are here to help. Our friendly Wealth Advisors can answer your questions, offer advice and work with you to create a plan that’s right for you and your family.
Planning for long-term care (LTC) and the insurance product solutions available today to pay for extended care have come a long way. Fast forward 30 years later and change has created innovation that is ideal for those families faced with paying for LTC expenses.
LTC is defined as someone needing assistance with their activities of daily living, such as dressing, bathing or feeding yourself. Moreover, since we are living much longer more people are being diagnosed with cognitive diseases, such as Alzheimer’s, which may require care for many years.
A look back shows LTC insurance became mainstream in the early 1980’s as insurance companies developed policies that paid for care in nursing homes only. Not ideal. However, over the years, LTC policies changed by adding provisions to pay for care in assisted living facilities, hospice care and in a person’s own home. This was great news for families especially trying to manage care and keep a loved one in their own home.
Most families eventually struggle to provide “informal care” (non-professional care) to a family member in their own home on a full-time basis and usually become “run-down” or ill themselves. As the family is always involved with managing or overseeing care, the emotional, physical, and financial strains can sometimes spiral out of control.
Nearly 85% of households will utilize LTC expenses at some point in retirement and addressing this risk should be of major concern to most families. Enter the importance of planning for LTC and a discussion of the current options available for mitigating this risk:
- Self-insure
- Medicare
- Medicaid
- LTC insurance
Self-insuring and paying for LTC expenses out-of-pocket can be financially devastating for families with current costs for home care in Missouri averaging $4,385 per month, $3,000 for assisted living facility and $5,080 for semi-private nursing home care per month.1
About 70 percent of individuals over 65 will require at least some type of long-term care services during their lifetime. About 40% of those receiving long-term care today are between 18 and 64.
However, actual expense levels are highly uncertain. Most families will face total LTC expenses of $100,000 or less, but 25% will have expenses exceeding $500,000.
The uncertainty around future LTC expenses can create financial fragility for some families in retirement with 76% of investors said their primary investment goal at present is to protect their portfolio from losses.
Medicare covers medically necessary care for acute care, such as doctor visits, drugs, and hospital stays. Medicare does not pay for most long-term care services or personal care— such as help with bathing or for supervision (often referred to as custodial care).2
Medicaid pays for health care services for those with low incomes or extremely high medical bills relative to income and assets. It is the largest public payer of long-term care services. Medicaid deals with this extra income by requiring you to help pay for part of the cost of your care in a nursing home by spending down assets and income to qualify.3 Please seek the advice of an eldercare law attorney prior to applying for Medicaid state assistance.
LTC Insurance - In 2020, insurance companies paid over $11.6 billion in LTC insurance policy claims.4 This money gave thousands of families much needed relief to transfer the risk to an insurance company from paying these expenses from their own pocket. In many instances self-insuring LTC expenses forces families to use funds from savings, brokerage accounts, retirement plans or sell off real estate to pay for LTC costs. These payment methods can also cause unwarranted tax issues. Please seek the advice of a tax professional.
How does LTC insurance work? Let’s cover the options – The Three Paths to LTC Insurance Coverage5.
We’ll start with Traditional or stand-alone LTC insurance. This option might be considered for individuals who are between the ages of 40-65, good health, couples, single women, business owners (tax-deductible), can only afford monthly or annual premium payments (these premiums are not guaranteed and could be increased by insurance company with approval from state), and assets between $250,000 to $1,000,000.
As discussed, the LTC insurance policies today have more benefit’s available to keep people in their own home. Traditional LTC insurance benefits for Home Health Care pays up to 100% of the policy’s monthly benefit for: personal care services to assist with the activities of daily living, homemaker services to help with housekeeping, grocery shopping and meal preparation, professional services of a nurse, home health aide or therapist, adult day care and Hospice Care.
At claim time, most of the traditional LTC policies will reimburse expenses - paying the actual expense up to the daily or monthly LTC benefit amount selected. Another way to think about owning a LTC insurance policy with inflation protection is to compare it to owning a 1969 Camaro - it’s usually worth way more 30 years down the road.
Hybrid Life/LTC insurance or Annuity/LTC insurance policieshave developed into one of today’s top choices for LTC insurance product solutions. This option might be considered for individuals who are between the ages of 55-75, couples, pre-retirees, retirees, cash strong, own cash value life insurance or annuities that can be transferred tax-free into a new policy and assets of $1,000,000 and above.
These policies are built to cover LTC expenses and feature a guaranteed life insurance death benefit, a guaranteed LTC insurance rider and guaranteed premiums. Funding options can include paying as a single lump-sum payment, for a 5-or 10-year period or annually.
Policy owners can also automatically increase LTC benefits by adding an inflation protection rider. These are solid contracts for those individuals who do not want to lose it; if they don’t use for LTC expenses since a tax-free life insurance death benefit will eventually be paid out to named beneficiaries.
Hybrid LTC policies will also have an expense or cash indemnity payout method that pays for all levels of care. Special interest should be given to how the insured and family would like to receive care, in what setting and who is overseeing the care. These decisions are important to know in advance depending upon if benefits are paid as a reimbursable expense or in cash. A LTC insurance cash benefit allows families to have more control with paying and managing care since the insurance company will pay the full LTC monthly benefit amount regardless of the actual expense. For example, a home health care agency charges $4,000 for care in a month, but the LTC benefit is at $6,000 per month. Under this scenario, the payment from the insurance company to the insured would be $6,000 under the cash benefit, whereas $4,000 would be paid under the expense reimbursement model.
A Life insurance policy with an LTC rider policy can also be an option for individuals wanting to transfer the risk of paying for LTC expenses. These policies might be considered for individuals between the ages of 40-65, have a need for life insurance, good health, and assets of $250,000+.
These policies are very favorable policies for those individuals who need life insurance now as well as later in life, plus want to leverage and accelerate a life insurance death benefit to fund LTC expenses. Other advantages are pre-funding large LTC monthly benefit amounts, having access to cash value and funding premiums over a lifetime and pay premiums via limited or single pays. There are also great funding opportunities from 1035 tax-free life insurance exchanges. As with the first two LTC product paths, these contracts are built to pay on an expense or cash indemnity model.
Not all policies offer all of the above options, so you should work with a professional to help determine what option would work best for your unique situation.
John F. Kennedy once said, “Change is the law of life. And those who only look to the past or present are certain to miss the future.” The great news is LTC planning options have changed and that is better for all.
