Elder Care Planning

Insuring the need for care in a nursing home or assisted living facility, is made possible through the purchase of a long-term care insurance policy, or through the purchase of universal life insurance with a long-term care rider.

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Long-Term care insurance
As the number of Americans entering retirement increases sharply over the next 20 years, long-term care insurance is a popular topic of conversation. Today, many people choose to buy long-term care insurance or universal life insurance with a long-term care rider, an alternative product to traditional long-term care insurance. Long-term care insurance will provide, via your policy, the financial capacity in the form of daily benefits, or in the case of universal life insurance with a long-term care rider, an advance of the death benefit, should you become unable to perform basic activities of daily living, referred to commonly as (ADLs).

Important Features to look for in a long-term care policy include:

  • Maximum periodic benefits. Maximum periodic benefits are the total amount of benefits the insurer pays during a prescribed period.
    Maximum lifetime benefits. Maximum lifetime benefits are the total amount of benefits the insurer pays over the lifetime of the policyholder.
  • Applicable services. Check what level of care is provided in the policy. Some policies will pay for skilled care, while other policies may also pay benefits forpersonal care, commonly referred to as “home health care”.
  • Applicable points of service. Some policies will pay for care provided only in a licensed facility, while others may also pay for home-based care.
  • Inflation protection. A long-term care policy with inflation-protected features may help to shield you from health care costs that tend to rise at a faster rate than the general rate of inflation. Be mindful that there is a cost to this extra protection, commonly referred to as a COLA rider.
  • Cost of premiums. A long-term care insurance policy may cost thousands of dollars a year in premiums. According to the National Association of Insurance Commissioners (NAIC), long-term care insurance premiums cost about two times as much at age 65 as they do at 50. At 75, premiums cost about seven times as much as for a 50-year-old person. Be aware that the premiums of long-term care policies may be guaranteed, or subject to annual increases.

Consider “Alternatives” to long-term care insurance.
Consider the use of a Long-Term care alternative – Universal Life Insurance with a Long-Term Care Rider.

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Why would a Universal Life Insurance policy serve as an alternative to Long-Term Care Insurance?
The answer is;

  • You would accumulate tax-deferred savings.
  • Your beneficiaries would receive a tax-free death benefit.
  • You would be covered for nursing home or home health care (in case you need it).

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Consider your overall LONG TERM CARE CHOICES
A) Do Nothing

  • Self-insure
  • Spend down assets
  • Apply for Medicaid

B) Buy Long Term Care

  • Experience Possible premium increases
  • You may pay for something you may not use
        Example: LTC premiums years 1-10 @ $3000/year= $30,000…

A long term care policy will provide you peace of mind, however, the money spent on LTC premiums is gone forever if the long term care policy not used! *Some newer contracts offer “return of premium” riders
C) Buy Universal Life with LTC Rider

  • No increasing premiums
  • If you don’t use it, funds accumulate tax-deferred!
  • If you die, beneficiaries receive tax-free death benefit (in our example), of $87,193!*
  • Should you need LTC or Home/Health Care, you now have benefits totaling $261,579!*
  • Consider that your cash is readily available via loan provisions (although not encouraged).

Universal Life Insurance with a long term care rider may not be ideal for you. However, it is a choice that is often overlooked. Consider whether or not Universal Life Insurance with a long term care rider is appropriate for your particular situation.

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Consider also, if you are living entirely off Social Security, you may be able to qualify for the Medicaid program for long-term care, provided you pass a “means test”. A means test is administered by the Social Security Administration to determine if the amount of income and assets that you own are enough to pay for the cost of a service that a federal program such as Medicaid would otherwise pay for.
Today, some employer benefit packages include a group policy for long-term care insurance. With a group policy, you may find long-term care premiums to be less than individual policies, and you may be less likely to face as rigorous a health condition questionnaire as you may for an individual policy.

Consider the following issues when choosing long-term care insurance policies:

  • Tax deductibility. You can add a portion of your premiums to your medical expenses and deduct the amount that exceeds 7.5% of your adjusted gross income (AGI). The portion of your premiums that may be deductible is based on your age.
  • Medicare and health insurers don’t pay. In general, Medicare, Medigap insurance, and private health-insurance plans don’t pay for long-term care, the NAIC says.
  • Pre-existing conditions and exemptions. Some insurers will not issue you a policy if you have a pre-existing medical condition. You may also want to see whether coverage for Alzheimer’s disease is covered in the policy. Some insurers exclude Alzheimer’s disease.
  • Health questionnaires. Be honest when answering health condition questionnaires. If you misrepresent the facts about a pre-existing condition, an insurer generally has the right to cancel the policy within a period of time (usually within 24 months of the issue date).
  • Insurer’s credit ratings. Since long-term care policies are issued by life insurance companies, it pays to check the insurer’s credit rating. You should aim to buy a policy from an insurer with a credit rating of single-“A” or higher.

The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax adviser.