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Finding the Right Long Term Care Solutions for You
By Ed Wallack, J.D., Certified in Long Term Care
With healthcare costs skyrocketing, long term care is increasingly becoming a top concern and is a significant threat to retirement income security. While many individuals are aware of the increasing cost of home health care and nursing homes, one of the sticking points to the purchase of a traditional long term care policy is the fact of “use it or lose it.” In other words, if the insured never qualifies for coverage, all of the premium dollars paid for the coverage are gone forever. Additionally, another sticking point is that premium costs for long term care coverage can and have been raised on existing policies, some increases of over 50%!
One strategy employed by individuals is to self-insure through significant liquid asset reserves. The upside to self-insuring is that you retain control over your money. The downside is that you risk not saving sufficiently for the long term care contingency, and given the conservative need of the investment, hamper overall portfolio growth and seriously inhibit transferring assets tax efficiently to heirs.
According to John Hancock’s 2011 Cost of Care Study, the current average cost of a semi-private room in a Boston nursing home facility is $10,403 per month. That adds up close to $125,000 per year. The number of American’s with Alzheimer’s continues to grow, and life expectancy after diagnosis can run for 10 years or more.
Do you believe you have sufficient assets and/or retirement income to cover long-term care costs? Which assets will you liquidate in order to cover the costs?
Fortunately, cost effective solutions to help mitigate these staggering expenses are available. By implementing a strategy that is right for you, you can take intelligent steps to help protect yourself from the ever increasing cost of care.
The insurance industry has responded to some of these concerns by creatively designing products that can help address concerns that consumers have raised.
Single Premium “LifeCare”
This product provides a guaranteed death benefit, long term care benefit and 100% lifetime money back guarantee. It is designed to accelerate the life insurance death benefit to reimburse long term care expenses. In a “LifeCare” scenario, an insured would initially determine the desired maximum monthly benefit needed to reimburse covered long term care services. A guaranteed single payment is calculated which purchases a life insurance benefit along with a long term care rider. At any time prior to qualifying for the benefits, the policy can be surrendered for a minimum of 100% of the single premium. And if the insured never needs long term care services and dies, the death benefit is payable to beneficiaries income tax free.
For example, for a single premium of $46,000, a 59 year old female would have a death benefit of $96,000 along with a supplemental “long term care rider” of $192,000. In event of qualification for long term care services, the policy would reimburse $4,000/month for 6 years (total of $288,000). If the owner changes their mind about the need for the policy, $46,000 will be refunded.
Long Term Care Rider as Part of Life Insurance Policy
In this type of design, a long term care services rider is attached to a life insurance policy. It is assumed that a life insurance need has previously been established. If the insured’s health declines and the long term care benefit is triggered, a percentage of the death benefit (1%-3%) is paid monthly to the policy owner. One of the attractive features of this rider is that benefits are payable on an indemnity (as opposed to reimbursement) model. If you qualify for long term care, the monthly benefit is payable direct to the policyowner to do as they please. This payment model provides exciting opportunities for estate planning as well.
Annuity
For those individuals who might not be able to medically qualify for standalone long term care insurance and/or life insurance, an optional benefit can be added to an annuity. Many annuities provide for lifetime withdrawals based on a guaranteed income percentage (e.g. 4%-6%) of the annuity value. A special option feature is available that doubles the annual income amount if the annuitant qualifies for long term care services. This unique feature provides the flexibility to double the annual income amount whether the annuitant is at home or in a nursing facility.
Please call (617) 225-2600 or email ewallack@sapers-wallack.com for additional information.
Taking withdrawals in excess of the annual allotted amount by the carrier can decrease the total amount guaranteed and the value of future annual payments.
As with any annuity, withdrawals of earnings are subject to ordinary income tax, and if taken prior to age 59 ½ may incur a 10% IRS penalty tax. Withdrawal charges apply to withdrawals taken in excess of the withdrawal amount available without a charge during the surrender charge period. All withdrawals reduce the death benefit and optional benefits.
The guarantees are backed by the claims-paying ability of the issuer.
This material is for informational purposes only and is not meant as Tax or Legal advice. Please consult with your tax or legal advisor regarding your personal situation.