At some point in their lives, most people will need some form of ongoing assistance, often called Long-Term Care (LTC). This includes assistance for an extended time with activities of daily living (ADLs) such as bathing, dressing, eating, transporting & toileting. Specifically, 70% of those reaching age 65 will need LTC before they die and they will receive care for an average of 3.5 years. At an average cost of $82,000 a year for a private room in a nursing home the cost of LTC is expensive. In addition to the nursing home the cost of a stay in an Assisted Living Community is around $40,000 per year. Home health care at 20 hours a week costs nearly costs about $22,000 a year.
While a few individuals and families can cover these costs out of their income and assets without difficulty, most cannot do so without substantially lowering their standard of living, compromising on care quality, limiting care choices and severely endangering their financial stability and their ability to continue to pay for care in the future. In addition to the physical and emotional consequences of caring for a loved one they quickly experience the financial consequences of not planning for Long-Term Care. There are several funding solutions to this challenge.
Some options cost more than many people feel they can pay while some provide only a portion of the funds needed. Some are available to those who meet certain health, age or income criteria. Others cover only limited care settings or providers. Still others require a sacrifice of assets and income before care will be paid for. Below we outline some of the various approaches to LTC financing that exists today. For more specifics concerning any given approach we invite you to call our office for more expanded details.
Extended Care Funding Solutions
Stand-alone Long-Term Care insurance is still the best option for the money. Today’s policies are rich in home health care benefits and designed to keep you out of a nursing home. They are an excellent option to consider, provided that you are healthy enough to qualify. Younger individuals can qualify for substantial amounts of coverage, with inflation protection, for around $100 a month.
Pros:
- Premiums can be tax deductible
- Inflation protection
- Don’t need a large lump sum to get started
- Partnership policies offer an added level of asset protection that allows individuals who receive benefits from a qualified private LTCi policy to obtain Medicaid LTC coverage without having to “spend down” all of their assets.
- Pays for qualified care in any setting from home health care, assisted Living communities to nursing homes
- Simpler and more flexible policy designs than in the past
Cons:
- Underwriting, especially for older clients.
- Premiums could be paid for many years and the individual may never use the policy, just like your home owner’s policy or your auto policy.
Many consumers are reluctant to buy long-term care insurance because they fear that their investment will be wasted if they do not use it. Some insurance companies have attempted to address this problem by combining life insurance and annuity products with Long-Term Care Insurance. The concept is that policy benefits will always be paid in one form or another. These products are relatively new and the features are changing as the products evolve. The amount of long-term care benefit is often expressed in terms of a percentage of the life insurance benefit.
Pros:
- Funds can be used for Long-Term Care Expenses or used as a lump sum death benefit.
- Generate tax-deferred gains.
Cons:
- Does not qualify for Partnership asset protection
- Some products require a large lump sum deposit to begin with.
- Surrender charges
- If there is no need for life insurance these concepts may not be appropriate
- You are underwritten for life & Long-Term Care
- If you do need life insurance and you use the benefit for Long-Term Care you could undermine one of the reasons you purchased the policy.
- Inflation protection may not be available or may not be adequate.
- For annuity products the policy has to be in force for two years before LTC benefits kick in.
Annuity products contain surrender charges if policy is discontinued in the early years.
These funding strategies allow you to sell your life insurance policy for its present value to raise money for Long-Term Care expenses. If you need to raise money for your Long-Term Care expenses and you no longer need your life insurance policy this is a strategy that should be strongly considered. After years of making premium payments many policyholders will allow a policy to lapse or surrender it for any remaining cash value. This is a big mistake when that same policy could be used to help pay for the costs of care.
Pros:
- This process does not require any health screens and you may be in good or poor health.
- Your life insurance converts into tax-free monthly payments covering any form of Senior Care.
- There are no waiting periods, no care restrictions, no costs or obligations to apply.
- There are no premium payments.
- Funeral expenses are covered
- Any remaining account balance is paid to the family.
- Types of care that are covered include: Home Care, Independent Living, Assisted Living, Memory Care, Nursing Home, and Hospice Care.
Cons:
- There may be little or no death benefit remaining for your heirs.
Pros:
- HSAs can represent another pool of money to use toward Long-Term Care Expenses
Cons:
- Annual limits to contributions
- Most people use their HSA funds to cover medical expenses such as deductibles, copayments and drug costs
There are serious drawbacks to planning on Medicaid to pay for LTC. The choice of care settings may be limited as only Medicaid participating providers may be used. Care at home or in an assisted living facility is either significantly limited or not available in many states. Medicaid covered services terms and conditions are continually subjected to change often because of state budget pressures. The most significant disadvantage is the requirement to spend down income and assets to qualify.