What You Need to Know About Planning for Long-term Care
by Mark Hanson CLTC |
September 13, 2021
Long-term care can be an emotional topic. It’s not exactly something you want to talk about with your friends and family. After all, no one wants to think about themselves or their loved ones being unable to care for themselves.
Long-term care services offer daily assistance for people with chronic illnesses or disabilities, whether provided in a nursing home, assisted living facility, or inside the home.
Did you know that 14 million adults needed long-term care services in 2018? According to the data provided by Genworth Financial, the national average costs for long-term care in 2020 are as follows:
Nursing Home: $8,821 per/month
Assisted Living: $4,300 per/month
Home Health Care: $4,481 per/month
Newer policies commonly cover in-home care, assisted living, skilled nursing care, and memory care. The requirements for benefits are also more consistent. Policies written today will pay benefits if you are unable to do two out of the six activities of daily living (eating, bathing, dressing, transferring, using the bathroom, and continence).
Types of Long-Term Care Insurance
Traditional Long-term Care Insurance
Traditional long-term care insurance provides a “daily” or “monthly” benefit that can be adjusted with inflation to keep pace with the rising costs of care. These policies pay benefits for 2-5 years and generally have a waiting period of 90 days once the claim has been filed before benefits are paid.
Hybrid Life Insurance
With a hybrid life insurance policy, you can access the death benefit while you are still alive to pay for long-term care expenses. These policies are generally more expensive than traditional long-term care insurance because they also provide a death benefit. Any amount of the death benefit that is not used for long-term care expenses is paid to the owner’s beneficiary at death.
A hybrid annuity is a tax-deferred annuity designed to help pay for potential long-term care expenses. These annuities are generally funded with non-qualified (after tax) monies and provide three times your initial investment plus interest for long-term care expenses. The benefits are generally paid over a 6-year period of time. Any of the initial investment and interest that is not used for long-term care expenses is returned to the owner’s beneficiary at death.
In certain situations, it can make sense to self-insure. In other words, you are in a position to be your own insurance company. However, that doesn’t mean you don’t need a plan. First, it’s important to quantify the risk. To be conservative, plan on needing $250/day for five years. Without accounting for inflation, today’s cost would be approximately $450,000! Second, begin setting aside the funds now. Someone at age 50 should have around $300,000 of adequately-invested resources set aside just for this risk.
According to the The US Department of Health and Human Services, 69% of all people will need some type of long-term care during their retirement years. That translates into the reality that 7 out of 10 seniors will need long-term care.
What about Medicaid? Some people think that it is simple to have all their long-term care needs met by the government’s Medicaid program.
According to research conducted by AARP, approximately 65% of nursing home residents are supported primarily through Medicaid. This number will undoubtedly rise over time with an aging population.
To seek assistance through Medicaid for skilled nursing care, it’s important to understand the rules in your state. Before trying to qualify for Medicaid, it’s critical to get legal advice from an attorney specializing in elder care.
In Iowa for example, in order to qualify for Medicaid, an individual must have $2,000 or less in “countable” assets and $2,349 or less in monthly income. For married couples where one spouse does not need care, $128,640 of assets can be kept in the non-applicant’s name.
People often ask the question about gifting assets to family in order to reduce assets to qualify for Medicaid. In many states, there is a five-year “look-back” period for gifts that could have otherwise been used to pay for care. Such a gift may result in ineligibility for Medicaid.
Overall, spending down assets to qualify for Medicaid should be your last option and proper planning is the best option.
People usually begin considering long-term care insurance in their 50’s and will purchase the insurance by the time they are in their 60’s. If it hasn’t been purchased by the time you reach 70, it’s typically cost prohibitive or you will no longer qualify for coverage due to health or age.
If you start planning early, you can protect your retirement savings and income from the high costs of long-term care! If you are planning ahead and researching different long-term care insurance options, consider doing so with someone with years of experience.
This is my 27th year working in the long-term care insurance market. My business comes primarily from referrals from attorneys, CPAs, and financial planners from across the state of Iowa. I am happy to help their clients find the best, most reasonable, and appropriate solution to finance long-term care.
For more information on long-term care insurance, click here to watch a short video by Syverson Strege.