Creating A Long-term Care Plan, Part 4

In this series, I am addressing the importance of creating a long-term care plan.

For more information, please visit care or call 524-2273 to claim your free spot for a long-term care seminar I will be hosting.

Last week, I discussed the three primary ways to pay for long-term care (LTC):

1) Self-funding
2) Government
3) Private pay options

Private pay options are LTC products that can help cover your costs. It is important to make sure the products you choose are right for you. Here are the most common types:

• Long-term Care Insurance. Costs depend on your health, age and gender. The younger and healthier you are, the lower your premiums and vice versa.

I recommend looking at LTC insurance in your early 50s. The cost of your policy also will depend on the maximum amount it pays per day, the maximum number of days that it will pay, your elimination period (when the policy kicks in) and any optional benefits. Make sure the insurance company has an “A” rating, has longevity and experience in the industry, and has treated policy holders fairly in the past. Research different companies to find the right type of policy for you. Traditional LTC insurance is “use or lose.” If you don’t use it, then like car and health insurance, you don’t get your premiums back.

• Reverse Mortgages. This is a special type of home-equity loan that lets a homeowner convert part of the value in the home into cash. The loan amount is tax-free and can be used in any way, often for LTC and health care costs. You can choose to get a lump sum or monthly payments and still live in the house. Reverse mortgages can be expensive, however, and most likely the home will not be passed onto the heirs unless they can pay off the loan.

• Annuities. This is a contract between you and an insurance company, where you pay a lump sum or make a series of payments to it, and in exchange it will make periodic payments starting now or sometime in the future. How much you get and for how long will depend on the type of annuity. Annuities can provide retirement income with some level of protection that can pay for LTC costs. They also have high expenses and are illiquid (you don’t have access to it), gains are taxed as ordinary income and you may be locked into a lower return.

• Hybrid Policies. These products have been popular since their recent launch. They allow you to combine annuities or life insurance with long-term care benefits. Unlike traditional LTC where you “rent” your policy, here you “own” it. These are called asset-based long-term care policies where you leverage existing assets to help pay for LTC expenses only if they are needed. If you don’t use it, the assets pass on to heirs.

Payouts of LTC were almost $8 billion last year, and that is expected to be $15 billion by 2023 — and $34 billion in 2032, when today’s 60-year-olds are in their 80s. This is a four-fold increase in two decades! Ki‘ilani Aczon-Nabua of Home Care Solutions states that “Most LTC is for those wanting to age-in-place (stay in their homes) or for assisted-living facilities, and not nursing homes. For many, LTC insurance is nursing home avoidance protection. This is why we help our clients maximize their assets so they can stay in their home as long as possible.”