Are There Alternatives to Buying Long-Term Care Insurance?

Let's face it; few people like buying insurance. However, insurance is a necessary product in many situations. What about long-term health care planning? Are their options available other than purchasing Long-Term Care Insurance?

Start by objectively reviewing the risk. Longevity has created many retirement planning challenges, including how to address the costs and burdens of aging.

Declining Health After Age 40 - Understanding the Risk

We face declining health. After age 40, it usually becomes evident. By age 50, there is no question that our health has declined since we were in our 20s.

Georgetown University Health Policy Institute research says three-quarters of those aged 50 to 64 use prescription drugs, compared to 91 percent of those aged 80 and older. 

The need for prescription medication increases as we get older. The average number of prescriptions filled also increases from 13 for those aged 50 to 64 to 22 for 80 and older.

Our bodies slow down, and once we get to certain age milestones, many people will also experience cognitive decline. The U.S. Department of Health and Human Services says if you reach age 65, you have about a 50% chance of needing long-term care.

What is Long-Term Care?

Long-term health care is either help with activities of daily living (eating, bathing, using the toilet, transferring, dressing, etc.) or supervision due to memory loss. Care can be provided in many settings, including at home, adult day care centers, assisted living facilities, memory care facilities, rehab facilities, and nursing homes. 

Traditional Health Insurance Won't Cover Long-Term Health Care Costs

The majority of the cost of long-term care services and supports are not covered by health insurance, Medicare, and supplements outside of a limited amount of skilled care. Medicaid will pay for long-term care but only if you have little or no income and assets. 

Without some plan, you or your family will be responsible for future long-term care.

Cost of Care is Expensive and Gets More Costly Over Time

The costs of long-term care are expensive and grow every year with increasing demand. The LTC NEWS Cost of Care Calculator says this can be a six-figure a year expense depending on the type of care you require and where you live. You can find the current and future cost of all types of long-term care services by finding your location on the calculator - Cost of Care Calculator - Choose Your State | LTC News.

Ways to Plan for Future Long-Term Care

Your family 

Perhaps the worst option, your spouse or adult children - or other family members could attempt to provide your future care. Family caregivers are unprepared and untrained for this role which is demanding both physically and emotionally. 

Your spouse will probably be around your age and not be the best option for providing care. They could make sure you are eating and make your meals, but otherwise, a caregiver's job is too demanding for older people.

Adult children will have their careers and families to consider, and juggling the role of caregiver with those responsibilities creates a tremendous burden. 

Research shows that most people want their loved ones to have the time to be family and not caregivers.

Self Funding Professional Care

Some people call this self-insuring, but that is incorrect - it is self-funding. You would have to put aside a large sum of money that you would use to pay for future long-term care services - otherwise, a loved one will liquidate an account to pay for your care.  

You could never take what you would pay in a premium for Long-Term Care Insurance and ever save enough to pay for future care. A Long-Term Care Insurance policy creates an immediate sum of tax-free benefits available right away and typically grows with inflation. Since you don't know when - and for how long you will need care - self-funding can be very expensive and adversely impact lifestyle and legacy.

Plus, when you self-fund, you will not be making the decisions - someone else will. Usually, one of your children will decide which accounts to liquidate and what type of care you will receive. Would they make the same decisions you would make?

With a Long-Term Care Insurance policy, you remain in control as you will access your choice of quality care options in the setting you desire. Most policies have professional case managers that will make recommendations and arrangements for care - allowing your family the time to be family. You maintain your control and independence. 

'Living Benefits' from an Existing Life Insurance Policy

Some life insurance policies allow an acceleration of the death benefit in the event of disability. Don't confuse this with available 'Hybrid' policies that are life insurance policies with a rider for long-term care. These hybrid policies are regulated under U.S. Code Section 7702(b) and are true Long-Term Care Insurance that includes a death benefit.

You might have an existing life insurance policy that includes a chronic disability rider. However, it will only accelerate the death benefit, which is often not enough to pay for care. Some require you to be 'terminal,' but most long-term care situations are not terminal. Most require your disability to be permanent as well; not all are. 

You cannot depend on a life insurance policy to fund future long-term health care.

Sell an Existing Life Insurance Policy

You can sell an existing permanent life insurance policy (sometimes even a term life policy) and use the proceeds for anything you want, including long-term care expenses.

Some companies will purchase existing life insurance policies called 'life settlements' or 'viatical settlements. You would get more money, usually, then surrendering the policy for the cash value yourself.

This will not be a great option unless you have a very large death benefit; however, it could be a good first step if you had no other plan. However, it would not be a solution when you are planning for future long-term care.

Use an Existing Annuity to Fund Your Care

If you own an existing annuity, you could annuitize it to fund your care; often, it will not be enough to cover the costs. You could purchase an immediate annuity to provide a steady stream of income to pay for long-term care. The amount of money you would receive depends on the initial deposit funding the annuity and your age, health, and gender.

You still would be using your own money and not a great way to plan for future long-term care needs.

Don't confuse this with a hybrid annuity that combines an annuity with Long-Term Care Insurance. With this type of policy, you purchase an annuity that immediately creates a much larger pool of money that grows with interest to pay for future long-term health care. It works like any traditional Long-Term Care policy, but if you never need care, the policy's accumulated value goes to your beneficiaries. A hybrid long-term care annuity would never be annuitized - you would use it for long-term care or provide to beneficiaries upon your death. This type of hybrid typically has more relaxed underwriting requirements.

Hybrid Long-Term Care Insurance

Hybrid policies are a way to plan for future long-term health care. As noted above, they are either a life insurance policy or an annuity with a rider for long-term care. To be a real Long-Term Care policy, the policy must meet federal guidelines under Section 7702(b).

Generally, these are paid with one premium, although some can be paid in five, ten, or even longer. Because of the death benefit, they can be an expensive option. 

Some individuals like the idea that no matter what happens, someone will get money from the policy. A Long-Term Care Insurance specialist can review with you if this type of policy makes sense for you and your family.

Short-Term (Limited Duration) Policies

This is very similar to a Long-Term Care Insurance policy but only offers one or two years of coverage. There are several types of available plans; however, they are not available in every state. 

The biggest benefit of this type of insurance is relaxed underwriting rules. While no policy will offer coverage for someone who already needs care, these plans have wider underwriting requirements. 

Plus, older people - even well into their 80s can be considered for new coverage. 

Traditional (and Partnership Certified) LTC Insurance

Most consumers still choose traditional Long-Term Care Insurance. Generally, traditional Long-Term Care Insurance will offer the most coverage at the most value. 

Partnership certified LTC Insurance offers additional dollar-for-dollar asset protection. 

You will need reasonably good health, and the most affordable time to purchase Long-Term Care Insurance is in your 40s or 50s, although you can find good options at older ages. 

Premiums vary widely, so be sure to seek the assistance of a qualified Long-Term Care Insurance specialist that offers the top companies and the several types of available plans (traditional, hybrid, and short-term).

Some of these plans include hared spousal/partner benefits and even return of premium riders. 

As a solution for the costs and burdens of aging, traditional plans usually have comprehensive benefits with the most value. However, since there are so many options and companies, along with premiums that vary over 100%, get qualified help - Work With a Specialist | LTC News.

Ignore the Problem

There is one final alternative - ignore the problem and hope it doesn't happen. There is a good chance you will still need long-term care, and someone will have to deal with how you receive your car, where your receive your care, and how it is paid for - but you could ignore it.

Planning for longevity and the consequence that comes with changing health is not just a money issue. Yes, long-term care is a cash flow problem - but it is also a family problem. 

Consider Your Family and Finances

Planning benefits your family and your finances. The ideal time to address long-term health care is in your 40s or 50s - but plan. Use the resources available on LTC NEWS to assist you in your research.