Long Term Care Insurance & Financial Planning: Understanding the Options
You sit down by yourself or with your family to figure out what you want your life to be like in the event you need care. Is there one idea that makes sense for everyone? In short, no, nothing is ever that simple. As you review your options, you may want to consider insurance as part of your plan.
When should people begin considering long-term care insurance?
Typical ages are between 50 and 75 years old. The premium is based on your healthcare costs at the time you sign your policy, your age, and your health. The younger you start, the lower your premium will be locked at—but the more years you will pay. Good/average health (which includes taking medications for minor issues such as high blood pressure) will make you eligible for the standard premium. If you take no medications at all and have excellent health, you may receive a 10% to 20% discount. And if you have chronic health issues such as insulin-dependent diabetes, you may pay 25% to 50% more.
When does it NOT make sense to purchase long-term care insurance?
There is no set answer, but people with less than $30,000 in assets may be able to qualify for Medi-Cal (California’s Medicaid healthcare program). There are excellent programs accepting Medi-Cal clients across the state, providing care management, adult day programs, skilled nursing, and more. But there may be waiting lists for these programs as they can be quite popular.
People who prefer some control over their choices of care may benefit from specialized policies such as a one-year nursing facility policy that will pay all costs the first year you enter. Because Medi-Cal beds in skilled nursing facilities are often limited, a one-year policy would allow you to select any Medi-Cal nursing facility you desire, as you go in as a full-fee paying customer. Following the year, Medi-Cal would pay coverage on your care, and you will not need to move.
When does it make sense to self-insure?
If you have a large estate such as $1 million in discretionary funds, you may be able to self-insure. Long-term care insurance policies can also be purchased through an irrevocable trust, designed to pay down your estate while still reserving funds to pass along as inheritance or to a charity of your choice.
Beware of generalizations. They do not pertain to the individual.
In considering your options for long term care, it is important to talk with a professional care manager, estate attorney, financial planner, or insurance specialist. Each person’s situation will be different, and policy offerings, investment opportunities, and tax laws change all the time.
What types of long-term care insurance policies are there in California?
There are currently four completely different plans that are meant to help protect assets, to take the burden off your spouse or children, ensure quality care, or help you self-insure for less money.
- Conventional long term care insurance
Main Purpose: take the burden off children, save assets for retirement, ensure quality care
You purchase a specified amount of coverage that will help you pay for some or all of the costs of care. Many policies include features like the services of a care manager (nurse or social worker who assesses your needs), money for home modifications, special equipment, medical help systems, etc. For an extra fee, your estate will receive your premium back if you die without using your policy. - California Partnership Plan
Main Purpose: protect assets from Medi-Cal spend-down
This policy works like conventional long term care insurance. It has three extra benefits. One, it allows you to protect some or all of your assets, in the event that you become eligible for Medi-Cal. The second, it limits the percentage that an insurance company can increase your premium. Third, it has additional oversight. In addition to being regulated by federal and state laws; the California Department of Human Services has a special department to closely oversee insurance company practices of these plans. - Life Insurance with long term care benefits
Main Purpose: eliminate on-going premiums for those who want to self-insure
This is a single premium policy (typically $50,000 from a CD). The policy invests your single premium to create a larger amount that is paid to your estate when you die. If you need long term care before you die, you can use your death benefit, plus extra coverage, for your care. - Annuities for long term care needs
Main Purpose: provides higher earnings from your money when you need care
(An annuity is an insurance investment product that grows tax-deferred.)
a) This requires a single premium that you exchange with the insurance company for a guaranteed income stream. This is a special annuity because it is based on your ill health. The monthly income will never run out and gives you significantly more income than typical investments.
b) This is a good option for people who have an existing investment that will be taxed on any gain. The investment can be transferred into this special annuity and then when you need long term care, you withdraw your gain, tax-free.
Source: Denise Michaud,CLTC, long term care insurance specialist with Thomas Brady & Associates.