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6 Options (or not) for Funding Long-Term Care Costs

It is estimated that one year of home health care — which averages roughly $44,000 per year today — will cost approximately $96,000 by year 2032 (assuming a 4% rate of inflation, 40 hours/week).1

The unpredictability of a chronic illness or long-term care event requires consideration of all the options available.

6 Options for Funding Long Term Care Costs

  1. Health Insurance & Social Security.Actually this is not really an option as Health insurance and Social Security do not cover costs associated with long-term care.
  2. Medicare. Medicare will cover only a portion of up to 100 days of long-term care costs, and that is after 3 consecutive days in hospital under a treatment plan. It covers first 20 days, and subsequently requires a copay for the next 80 days, if those days are eligible for Medicare.
  3. Medicaid. Medicaid covers long-term care costs for individuals with assets of $2,000 or less, depending on the home state. Care may also be limited to care provided in a nursing home.
  4. Adult Children. There are significant financial, physical and emotional burdens on families who provide the care-giving. Many family members do not have expertise in elder care needs, nor in the dispensing of medications.
  5. Out of Pocket. Using savings or selling assets is an option. However, assets that are depleted will not be available for the living expenses of a healthy spouse. Once assets are depleted, the patient has no control over the quality or conditions of care.
  6. Risk Management Solutions. Carving out a portion of assets today to fund long-term care expenses tomorrow can go a long way in designing the quality of care that is acceptable. An insurance policy that covers expenses for long-term care or chronic illness allows clients to proactively manage risk to one’s portfolio of assets and establish the standard of quality care giving that is personally acceptable.

3 Risk Management Solutions to consider are:

  1. Traditional LTC Insurance Policy. Stand-alone long-term care insurance policies are the traditional insurance policies familiar to many. LTC policy premiums must be paid annually–though, with most, premiums are waived when benefits under the policy begin.  An insured age 55 may be paying premiums for many years before taking any benefits, if any. Because women live longer than men, all other things being equal, premiums are generally higher for women on these policies.
  2. Life Hybrid Policy. Clients who feel queasy about purchasing an LTC stand-alone policy they may never use, may consider a life insurance hybrid policy with an LTC rider or a chronic illness rider. Hybrid policies allow the death benefit to be accelerated during lifetime to cover long-term care costs, if and when needed. This way, if the rider is never exercised the heirs will receive the death benefit as a tax-free inheritance. However, there are no inflation adjustments available with hybrid products, like there are for traditional LTC policies or Linked Benefits, as discussed below.  Note that with hybrid products, any death benefit available to heirs will be reduced by the amount of the LTC benefit used.
  3. Linked Benefits Policy. A Linked Benefit policy, also referred to as an asset-based policy, allows the policy owner to contribute a one-time lump-sum into the policy and receive coverage for long- term care expenses if and when needed in the future. There is also a small death benefit for beneficiaries on these policies, assuming the full LTC benefit is not used. Several Linked Benefit policies provide a return of a portion of the premium paid if the policy is surrendered. Note that several insurers who offer Linked Benefit policies now allow insureds to make annual payments into the policy instead of a lump-sum. Annual payment options are often of short duration such as 1, 3, 5 or 10 years—but can sometimes be longer.

1Market Survey of LTC costs, Mature Market Institute, November, 2012

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