Archive for May, 2011

2 Alternatives to Traditional Long Term Care Insurance

May 24, 2011

What if you understand the long term care risk to your (and your spouse/partner’s) assets but, (a) You do not want to have ongoing insurance premiums and, (b) you want to know that you or your estate will at least get back all the insurance money you have paid in, even if you never need long term care?  If this describes you, then keep on reading.

Combination life & long term care insurance:  These products combine a single premium life insurance policy with a long term care insurance benefit equal to about 3-6 times the one-time insurance payment.  They also offer a life insurance death benefit ranging from about 1.2-2.0 times the original premium.  In addition, a guaranteed right to have the original premium (less any policy benefits received) returned if the policy owner later decides that insurance protection is no longer wanted. 

Combination annuity & long term care insurance: Here we have a single premium, fixed annuity combined with a long term care benefit.  The long term care benefit is usually about three times the premium paid.  The account value grows over time as with any fixed annuity.

Applicable to both: These hybrid (combination) policies policies cover home care, assisted living and nursing home long term care services.  Benefit triggers are generally the same as for traditional long term care insurance policies.  Both types of hybrids allow optional inflation protection, but on a more limited basis than traditional long term care insurance.  Combination insurance products provide many, but not all, of the “bells & whistles” of traditional policies.  Daily/monthly benefit alternatives are available.

Since 1/1/2011, the Pension Protection Act has permitted the tax-free exchange of non-qualified annuities (that is: not from annuities inside IRAs or anywhere else for which taxes have not yet been paid) for those with long term care benefit multipliers.  By exchanging an existing annuity that has built-up taxable gain, you can then take out dollars to pay for long term care services without having to pay tax!  There is no other way of accomplishing this.

Hybrid policies may be ideal for the person who has “safe” money being saved for a rainy day…especially if that “rainy day” includes the day long term care services are needed.  Which is better?  It depends.  If funding for the new policy comes from a non-qualified source and there is built-up gain, then I would lean toward the annuity combination.  For anything else, I would probably recommend the life-long term care insurance combination. 

There are many more details needing consideration before deciding if a combination policy makes sense for a particular situation.  If you have low-risk money put aside for that proverbial rainy day, then we should talk.  Call me for more information at 303-699-4172.

Disclaimer: Actual policy language, rather than the contents of this eNewsletter always takes precedence.  Long term insurance policies vary from company to company & within the same company.  Raymond Smith, The Long Term Care Specialist, does not give legal or tax advice.  Consult your tax advisor or attorney for these matters.

 

© Raymond Smith, The Long Term Care Specialist, 2011

You Must Have a Plan…

May 24, 2011

…to pay the extraordinarily high costs of long term care services when you need them.  The average cost of a private room in a Metro-Denver nursing home is now $85,000 per year.  A semi-private room is only slightly less.  Home care in Denver costs about $25 per hour…$250 per day for 10 hours of home care.

Insurance is not always the answer, but you must have a plan…or you will have few to no options when the care crisis happens.  Without a plan, your family (and to a lesser extent, yourself) will suffer.  Here are some long term care plan alternatives:

1. “I will spend down all of my, & my spouse’s, assets until I qualify for Medicaid.”:  A Colorado married couple can have no more than $112,000 in non-exempt assets.  That is not much for a surviving spouse to live on for the rest of her/his life.  A single person can have no more than $2,000 (this is not a typo).  So much for leaving something for the grandchildren.  Medicaid is under attack at both the federal & state levels because it is adding so much to the deficit.  It (Medicaid) is not sustainable as it exists today.  I predict even tighter eligibility rules and further reductions in Medicaid quality of care.

2. “I will rely on my health insurance & then Medicare.”: Won’t work.  Neither health (medical) insurance nor Medicare pay for long term care services.  Health insurance and Medicare pay for care to get you well again.  Once you are as good as you are going to ever be but, you still need help in getting through the day, health insurance/Medicare drop off and long term care insurance (if you have it) takes over.   

3. “I will self-insure against the risk of long term care.”:  Perhaps.  A single person with at least $1.5 million or a married couple with at least $3.0 million in assets probably could self-insure…but why would it make sense to do so?  First, high net worth people can afford to buy long term care insurance.  Second, the carefully thought out estate plan cannot be executed.  Instead of assets going to chosen children & grandchildren, favorite charities, universities, etc, the money will be consumed by long term care services.

5.  “My children will take care of me.”  Have you had that conversation?  Your children probably would take care of you…but you won’t want them to and they won’t want to do it.  Do you really want your kids putting their lives on hold?  Which adult child do you want bathing you?

5. “The need for long term care will never happen to me.”: Maybe not, but most likely it will.  When it does happen, the impact upon your family will be catastrophic.

6. “I will buy long term care insurance while I am healthy enough & young enough to do so.”: For most people who can still qualify medically, this makes the most business sense.  You will be paying for benefits with pennies on the dollar.  This specialized insurance is at least worth taking a good look at.

Bottom line:  You do not have to buy long term care insurance, but you do have to have a plan.

Disclaimer: Actual policy language, rather than the contents of this eNewsletter always takes precedence.  Long term insurance policies vary from company to company & within the same company.  Raymond Smith, The Long Term Care Specialist, does not give legal or tax advice.  Consult your tax advisor or attorney for these matters.

 

© Raymond Smith, The Long Term Care Specialist, 2011