Long-term care options
As the baby boomer generation continues to progress through life and gain more wisdom, we see an ever growing need for this generation to have some sort of a thought out plan for their long term care needs. Having a plan for long term care makes a lot of sense and can alleviate ones family from having to suffer the pain that comes at the time of need. If you have not experienced this first hand, just ask around because many people have and it can be painful. Here are a few statistics that are often overlooked when it comes to the idea of long term care:
- Less than 33% of Americans 50 plus have begun saving for long term care
- 70% of people turning age 65 can expect to use some form of long term care during their lives
- Long term care does not mean nursing home care
- The government only helps pay for long term care once you are nearly out of money (broke)
*Source: www.longtermcare.gov (2016)
First let us start by addressing what long term care is. Long term care is NOT nursing home care. Long term care can include what we would all want first, which is “in home” care. This entails hiring either a family member or a care provider to give you care in your own home. Sometimes this includes doing some retro fitting of a home for walkers or wheel chairs but often times this is just getting some helping hands onsite to do some of the daily activities (help eating, bathing, dressing, toileting, transferring (walking) and continence). The second type of care that is desired before entering a long term care facility, would be some sort of assisted living facility. This is where the patient is outside their home but in an assisted living facility. It is cheaper than a normal long term care facility but more expensive than in home care. The third and last option is a physical long term care facility which is full care. This is the most expensive option. This is usually something that one only would use if they are in serious need and cannot get by with the other two options.
Now, here are the potential solutions for long term care needs as we move forward. There are really four (4) main options and they all are good options as long as you know how they work and you have thorough understanding of the options. Here they are in short form and we will discuss each option below: have a plan to pay for your needs from your assets/income, have a long term care insurance policy, have a life insurance policy with a long term care rider, have an annuity of some sort that offers a long term care benefit. There are pro’s or con’s to each and we will go over those next.
Option 1: Pay for from assets and income
For many consumers today, they view long term care as a potential need but they are willing to “self-insure” the risk. This could be someone that has tens of millions of dollars in assets. Or another scenario would be someone who has no assets or way of paying for the long term care. It could also be someone who just takes the mentality that they don’t mind rolling the dice and risking it. We can really relate to the first two options of having enough assets or not having enough to pay for it. We would struggle to see someone roll the dice but we often tell clients, it is your money and plan and if you are comfortable with it then go for it. Often we will have this noted in clients files. For those who have enough money to cover this expense we often advise (or even someone rolling the dice) that they get into some estate and trust planning as well to place some barriers around their assets. If you want to learn more about this, just visit this link for our estate planning page.
Pros: no long term “premium” care expense, no underwriting
Cons: can be very costly if a long time period of care needed
Option 2: Have a long-term care policy
This is an option that entails taking money out of ones living standards or assets and purchasing a long term care policy. This policy can vary from something that is very expensive and covers absolutely everything all way to something that covers very little and can be pretty economical to purchase from an insurance carrier. The variables on long term care insurance including everything from the benefit dollar amount to waiting periods (like a deductible on your car insurance), which can be no waiting period, 30, 60, 90, 180 or 365 days (most common) to several other options, to benefit periods (length of time the coverage will last once you start receiving it), which can be anything from a year to a lifetime and several in between, among several others options. There are MANY more options that you have to select from which can get pretty complex. If you want to know more about all the options that exist in a long term care contract of if you want some assessment of your personal long-term care contract, please click here and we would be more than happy to help.
Pros: this provides long term care coverage and there are many options available
Cons: can be very costly, you get nothing back (assuming no return of premium rider), must go through underwriting to obtain, must pay for a long time period, premium can typically increase over time
Option 3: Have a life insurance policy with a long-term care insurance rider
Life insurance policies these days are becoming more and more comprehensive to garner more attention from the populous. This type of policy simply incorporates similar aspects of the above mentioned long term care policy (without most of the choices) but has some limitations as well as some other benefits. The biggest downside to the above mentioned policy is: you must incorporate a very expensive return of premium rider that will not pay back if you do not use the coverage. However, with this option, if you do not use the long term care insurance rider you will still have the death benefit to fall back on; we will all die. This assumes the policy is structured properly to last your entire lifetime. We like to see clients have their life insurance policy structured to last their entire life so that the insurance company is always on the hook for paying out a death benefit no matter what. These riders benefits are typically built into the policy for the most part and the monthly benefit is usually based off of the death benefit of the life insurance contract. The most common is 2% of the death benefit but that is not the only one that exists. There are actually two formats for this type of a contract; one of those focuses more on the life insurance contract first and that is the framework the insurance company uses to build it; the other is based on the long term care insurance policy first and that is the framework the insurance company uses to build it. As you might imagine, the first has a larger death benefit and smaller long term care benefit and the second has more of a long term care benefit and less of a life insurance benefit. The second is actually quite a bit easier to qualify for. If you would like for us to email you a list of companies that we like for these services, please click here and ask for this in the ‘Reason for Contact’ box.
Pros: this rider is fairly inexpensive in relation to a long term care insurance policy, the rider goes away if not used and the consumers’ beneficiary still gets the death benefit, some of these have a 100% return of premium at any point in time, one can short pay these (1 year to whatever one would choose)
Cons: must go through underwriting to obtain or to add to a life insurance contract
Option 4: Have a fixed annuity with long-term care provision built into it
Fixed annuities with long term care insurance provisions allow a client to put money into an annuity contract and then draw on that money down the road for the use of long term care needs. This is similar to option 1 and option 3. They are typically a onetime payment and can typically be used at any time without restrictions for long term care needs. There are many varieties of these and many companies are changing their contracts very often so if you want more information on this, please let us know and we can get that for you. You can request that by clicking here.
(Fixed annuities are long-term investment vehicles designed for retirement purposes. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Withdrawals made prior to age 59½ are subject to a 10% IRS penalty tax and surrender charges may apply.)
Pros: they are built into the products and one does not have a premium, many times offer a return of deposits if you change your mind, money can sometimes still grow as the contract matures
Cons: your money could grow slower than if in a different financial product without long term care provision
Disclosure: Insurance guarantees are based on the claims paying ability of the issuing company.
Riders are additional guarantee options that are available to an annuity or life insurance contract holder. While some riders are part of an existing contract, many others may carry additional fees, charges and restrictions, and the policy holder should review their contract carefully before purchasing. Guarantees are based on the claims paying ability of the issuing insurance company.