PLANNING FOR THE LONG-TERM, PART II: PAYING FOR THE COSTS OF LONG-TERM CARESubmitted by Reby Advisors | Certified Financial Planners | Danbury, CT on February 13th, 2014
Friday, February 14 2014
As noted in Part I of the long-term care series, the costs associated with these services are quite high. However, there are a number of strategies that can be employed to help cover the costs of long-term care services.
In some situations, you may be able to use your life insurance policy to help pay for long-term care through the following:¹
Combination (Life/Long-Term Care) Products Accelerated Death Benefits (ADBs) Life settlements Viatical settlements Combination Products
As financial planners, we often hear about the concerns that people have when it comes to buying LTC insurance because they fear that they will not use it and their money will be forever lost. There are some newer insurance products that offer a combination benefit of life insurance and long-term care insurance. These products can ease the worry of not being able to use the benefit since it will be paid to either cover long-term care expenses or the proceeds will be distributed at death.
Accelerated Death Benefits (ADBs)
Some life insurance policies have an added benefit that permit a tax-free advance on your life insurance death benefit during your lifetime. These benefits may be added on as a rider to a traditional policy and therefore may have an added cost. This is a feature that you would specifically address with your financial advisor or insurance company.
The concept with this type of plan is that you are able to sell your life insurance policy at present value to generate cash to cover long-term care expenses. Although these plans do not require one to be terminally ill to sell the policy, there are some restrictions. Generally, Life Settlements are only available to women age 74 and older and to men age 70 and older.¹
Important considerations: ¹
Selling your life insurance policy during your lifetime may result in little to no payments available to your heirs upon your death The process does not require any health screens; you may be in good or poor health The proceeds of the sale may be taxed Viatical Settlements
This plan enables you to sell your life insurance policy and use the proceeds to pay for long-term care services. Unlike a Life Settlement policy, a Viatical Settlement is only possible for those people who are terminally ill. The viatical company owns the policy and will pay the premiums and in return you are paid a percentage of the death benefit. However, upon death the company will get all proceeds from the policy.
Another way that a Viatical Settlement differs from a Life Settlement is that the money may be tax-free in certain circumstances.
The purpose of Long-Term Care insurance is to provide funding that will cover the expenses associated with personal and custodial care whether the services are provided in your home or a long-term care center.
Associated costs are dependent on the following:¹
How old you are when you buy the policy The maximum amount that a policy will pay per day The maximum number of days or years that a policy will pay Any optional benefits you choose, such as inflation riders Self- Insurance
Another option is to pay for long-term care services by using income, savings and other investments. However, since this option can have a serious impact on the family’s overall financial well-being, it is not always the most desirable, or in many cases even a possible, solution. For families that have planned and set aside funds to cover long-term care expenses, this can be a sound solution, but for those families that are taken by surprise, or just don’t have the financial means to fund these services, the outcome can be devastating.
Unlike Medicare, Medicaid may cover long-term care services provided in nursing homes and at home. However, there are many restrictions regarding eligibility to receive Medicaid benefits. There are federal requirements outlining eligibility and services that are covered. However, each state has flexibility to determine how their programs will be operated. In general, Medicaid eligibility is determined by meeting certain requirements, including having income and assets that do not exceed the state specified levels. After the state has decided that someone is eligible for Medicaid, they must then make an additional determination regarding eligibility for long-term care services. ¹
The basic health insurance plans that many of us have, either individually or through our employers, do not generally pay for long-term care services. Some policies may cover certain benefits related to short-term skilled nursing care but have restrictions when it comes to providing long-term care services. Some of the limitations are as follows:¹
Like Medicare, the skilled nursing stay must follow a recent hospitalization for the same or related condition and is limited to 100 days Coverage of home care is also limited to medically necessary skilled care Most forms of private insurance do not provide any coverage for custodial or personal care services Medigap
Medigap polices are a form of private insurance that can be purchased to supplement Medicare coverage. In general, these policies tend to provide the following:¹
Cover Medicare copayments and deductibles Enhance your hospital and doctor coverage, but does not extend to long-term care coverage Cover the daily Medicare copayment for days 21 through 100 for the small portion of nursing home stays that qualify for Medicare coverage Medigap insurance is not intended to meet long-term care needs and provides no coverage for the vast majority of long-term care expenses like care in a nursing home, vision or dental care, hearing aids, eyeglasses, or private-duty nursing. Disability Insurance
There are some misconceptions about disability insurance in regard to long-term care benefits. The purpose of disability insurance is to replace or supplement the income of an employed person if a disability prohibits them from working. Disability insurance does not:¹
Cover medical care or long-term care services Provide benefits once you are over age 65—when you are most likely to need long-term care services. There are many things to consider when trying to determine the best path to take to cover you and your family’s risk. It is always a good idea to consult professional advisors before making decisions that could derail your future plans or lifestyle.