The public's interest in long-term care planning is increasing as more people realize how longevity will impact their loved ones and their financial position. Long-Term Care Insurance may not yet be a household word, yet in 2019 the major insurance companies paid over $11 Billion in benefits to American families. That money is protecting savings and income and giving people independence and control.
The March market losses due to the coronavirus illustrate how unexpected events can adversely impact your savings and investments, even in a good economy. Many Americans, including those with substantial assets, have seen their 401(k), IRA, SEP, and other accounts drop.
If a need for long-term care forces a family to sell assets during these market corrections, the actual cost of care services cost more expensive when you factor the market losses into the equation.
The need for planning for the financial costs and burdens of aging is very much on the minds of those ages 45 to 65.
“It has been my experience that nearly 75% of the individuals that purchase Long-Term Care Insurance are pre-disposed to long-term care due to family history.”George Mellendorf, President of LTC Solutions
Long-Term Care is a Family Issue
Mellendorf explains that when an adult son or daughter sees how aging has impacted their parent’s health and the impact paying for care services has on savings, they want to make sure they don't go through the same issues as they get older.
As medical science continues to advance, so does our lifespan. The result, even high net-worth families, can be problematic.
“The main concern is always an emotionally driven one, I don’t want this to happen to me but if it does I don’t want to be a burden to anyone else.”Mark Goldberg, President of FPS Insurance Agency
Many experts say high-net-worth consumers have a choice, although some financial planners recommend keeping money in investments.
“25% of my clients are in a position to self-insure but choose to apply for a solution, whether it be traditional Long-Term Care Insurance or a Hybrid plan because they simply can’t invest their money and get the same return they will realize from coverage.”Mark Goldberg, President of FPS Insurance Agency
Can You Self-Insure? Should You Even if You Can?
Experts differ as to the amount of money you need even to consider self-insuring. It ranges from as low as $1 million to $5 million or more. For high-net-worth consumers, one of the concerns would be a very long and costly extended care situation, which could be devastating to even those with substantial assets.
Many people fully invested in the market saw losses of 27 to 45% or more. These losses are only losses if you sell the asset at the wrong time. Imagine if your family was forced to drain your savings during some future market correction?
According to the American Association for Long-Term Care Insurance (AALTCI), a national consumer advocacy and education group, 13.9 percent of all Long-Term Care Insurance claims are expected to last more than five years.
Those with considerable assets are also concerned about the tax consequences of selling assets to pay for future extended care. Even selling at a loss could create a taxable gain. If you have a longer care event the cost of that care could drain even large estates.
Don't forget, wealthy or not, families face many challenges when a parent suffers a long-term care event. An LTC policy will reduce the stress and burden on loved ones.
"The latest data I have seen regarding care need duration comes from a report issued in 2017 by Credit Suisse," said Jesse Slome, executive director of the AALTCI. The report shared that 18.9 percent of care need was less than one year, 7.8 percent was between one and two years, 11.7 percent was between two and five years and 13.9 percent of claims could be expected to last more than five years."
"It is important for consumers to understand the need to plan but also that there isn't a one-size-fits all approach to long-term care planning."Jesse Slome, AALTCI Director
Long-Term Care Insurance Provide Guaranteed Tax-Free Benefits
Most Long-Term Care Insurance plans are “pool of money” products, which can grow with some type of inflation benefit. Decades ago, insurance companies offered “unlimited benefits.” These are very rare to find today.
Two well known unlimited options are from National Guardian Life (NGL) and One America. The NGL is a traditional Long-Term Care Insurance policy while One America offers a so-called “hybrid” policy. A hybrid policy is an asset-based plan that features a life insurance policy that provides benefits for long-term care. Since it is a life insurance policy, it offers a death benefit. The NGL traditional plan does offer a return of premium option. In both cases, they can be expensive since they provide unlimited long-term care benefits. The question is: do consumers need an unlimited benefit?
“Great Question, without a simple answer. If pushed I would say no lifetime is not really needed. A shared care policy where both partners can dip into each other pool of money that has a designed duration of 6.5 years is going to cover most combined risk and allow for enough time for some estate or Medicaid planning in case a claim were to last longer. There are exceptions to this rule but not enough to matter.”Mark Goldberg, President of FPS Insurance Agency
Slome offers an approach which may remind some people of the old Sears catalog.
“We continue to encourage what we call the Good-Better-Best approach to long-term care planning, where coverage for even as little as one or two years can be better than having no coverage at all."Jesse Slome, AALTCI Director
Unlike the markets, affordable Long-Term Care Insurance provides a safe haven for your money. The policyholder has guaranteed tax-free benefits. Most policies with inflation benefits increase those benefits every year by a guaranteed percentage. No matter what is happening with the markets and the economy, your Long-Term Care Insurance policy continues to grow each year.
The policies are also non-cancelable. The insurance company can never cancel the policy as long as you pay the premium. This gives you and your family additional peace-of-mind.
Partnership LTC Policy Provides Dollar-for-Dollar Asset Protection
If a person doesn't purchase an unlimited benefit, they can still leverage substantial asset protection with an affordable Partnership Long-Term Care policy,
Partnership plans provide additional dollar-for-dollar asset protection but are more geared for those with under $750,000 in assets and especially ideal for protecting smaller savings to prevent a family from losing everything. Can a high net-worth consumer get substantial asset protection without unlimited? The answer, as Goldberg suggested, is yes.
Consider this example. A couple, both age 54, purchase a Partnership Long-Term Care policy with an initial $250,000 pool of money for each of them. They include a shared care rider that connects the two policies together. Since they are young, they purchase a 3% compound inflation rider, which means their benefits – not the premium – increase 3% every year on a compound basis. This couple would have a combined $1,078,296 in long-term care benefits at age 80.
Since this is a partnership policy, the couple would enjoy dollar-for-dollar asset protection in the event they were to spend through all the benefits. If they were to exhaust the benefits, they would enjoy the ability to shelter over a million dollars and still qualify for the Medicaid long-term care benefit.
Seek Help from a Qualified LTC Insurance Specialist
Experts suggest that you should seek the assistance of an experienced Long-Term Care Insurance specialist who can provide you with accurate quotes and professional recommendations based on your situation. This way, you can obtain suitable coverage without over-insuring and spending more money than they need to.
“I don’t care to you have saved $150,000, $1,500,000 or $15,000,000. In all cases that person has worked very hard to save and plan for their family’s future. Everyone wants to have peace-of-mind and value. This is why a consumer should speak with a specialist who understands policy design and claims usage. Specialists know how these plans work and how they get underwritten. They can match you with the best company with the appropriate plan based on your needs.”Brent Donarski, a Long-Term Care Specialist who operates MyLTCSpecialist
Considering the likelihood of needing some type of extended long-term health care before death, the idea of an advance plan to address these costs and burdens makes sense … dollars and sense.
No matter the size of your estate you are attempting to protect, you can find a plan to safeguard your assets and reduce the burdens placed on family.
Today's LTC Insurance Is Affordable and Rate Stable Asset Protection
But what about the articles talking about industry problems and rate increases? Donarski says the increases were primarily on legacy products sold before rate stabilization and the interest rate crash. In addition, the industry discovered that once a person gets a policy, they never lapse it. Donarski points to that fact as proof that even with increases on the older plans, they are still affordable.
Today, policies are priced based on the low lapse rates, the low-interest-rate environment, and much more conservative underwriting. Rate stability makes it less likely to see repeats of premium increases in the future.
Hybrid plans can never have an increase in premiums. By contract, these policies are paid either with a single premium or annualized premiums. Either way, the premium can never be increased, period.
“Long-Term Care Insurance has a voluntary lapse ratio of less than .5%, Yes, ½% let their polies lapse.”George Mellendorf, President of LTC Solutions
Premiums for today’s plans are still very affordable. Many consumers in their 50s, for example, can get outstanding coverage for less than $150 month. Depending on the amount of benefits you purchase, the premium could be lower or higher. Factors like your health and family history could affect the premium.
One thing all experts agree on is you should have a plan for the financial costs and burdens of aging. The plan might be insurance or some other type of plan, but an advance plan is prudent for everyone, from a high net-worth person to those with minimal savings. That plan should be put in place, experts suggest, well before you retire.
You can read many articles on the Internet about long-term care planning, but at some point, you will need the help of a qualified specialist.
A qualified specialist should represent the major insurance companies, have a complete understanding of underwriting, policy design, and claims. It would be best if you avoided any agent or financial advisor who only represents one or two companies. Underwritingcriteria varies with every insurance company. Premiums also vary with every insurance company and can vary over 100% for the same benefits.
Experience is not quantified in how many years a person has worked in the industry. What is important is how many people the person has helped during their career.
Items to Discuss with a Long-Term Care Specialist:
- Partnership: Most states offer special policies that provide dollar-for-dollar asset protection. The Long-Term Care Insurance Partnership Program might be one of the best-kept secrets in retirement planning. Make sure the specialist explains this program and how it might help you.
- Tax incentives: There are federal tax incentives available for some people. If you own your own business, be sure to ask.
- Health Savings Accounts: If you have an HSA you can use the pre-tax money in your account to pay for the premium.
- Asset-Based or Hybrid policies: These are life insurance or annuities with a rider for long-term care. Careful, only a handful are actually a long-term care benefit. However, one of these policies can provide you with the flexibility of both a long-term care benefit or a death benefit. They are expensive but can be paid with a single premium.
- Health and Family History: Make sure the specialist asks you detailed questions about your health, family history, and retirement plans. Underwritingcriteria vary with each insurance company. If they are not asking you detailed questions, then find another specialist.
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Make getting older easier on those you love as you give yourself control and independence. Affordable Long-Term Care Insurance can be your solution, no matter the value of assets you have.
Planning is more than just asset protection. It is about family. Give your family the time to be family as you give yourself peace-of-mind.
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