Puzzle Piece #3

Retirement Puzzle Piece #4

Health Care and Long Term Care

Learning Video: Health Care and Long Term Care Part 2

Without giving it much thought, many people assume that they will get old and die. One phrase, almost one word, and certainly one seamless concept. That when they get old and infirm, they will die soon after.

So a deteriorating quality of life does not matter. That is a deeply mistaken idea and a dangerous premise for planning your life.

In fact, you will probably get old and live. You can get decrepit, if you'd like. But you are not likely to die.   You are likely to live like that for a long time.

Most Americans today will live into their mid-80s. Whether they're in great shape or shuffling around on walkers. And that “end age” is increasing. So you may well live into your 90s, whether you like it or not. Which is good reason to make plans for eventual custodial care that will occur sometime in the last third of your life.

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Is LTC Insurance a Waste of Money?

One question that has been on consumers’ minds ever since the first LTC Insurance Policy was introduced in 1965 is: Should you purchase this type of insurance or is it just a waste of money? The answer is emphatically: Every person who can medically qualify for this type of coverage should do so.

And here are eight powerful reasons why:

  1. The Odds of requiring LTC in your lifetime has risen to 70%. That’s a far greater risk than an auto accident or a house fire. But while most people won’t be without homeowners insurance and auto insurance, there are far too many people in America today who are uninsured for LTC.
  2. Without coverage, you run the risk of having to spend down your entire life savings for LTC needs before you die, leaving nothing to your heirs. Or worse yet, leaving nothing to your surviving spouse.
  3. No parent wants to be a burden to their children, especially if their kids are also raising their own children.
  4. As a society, we are living longer. There are more people over the age of 100 today than any other time in history. Yet, we still have no cure for Alzheimer’s, Parkinson’s disease or many of the other illnesses that cause a need for long-term custodial care.
  5. In order to qualify for LTC Insurance you must be reasonably healthy. If your health isn’t so great, you will pay more in premium or you will be unable to qualify entirely.
  6. For several years, Federal and state governments have been pushing people to purchase their own LTC policies. The reason: If more people purchase LTC Insurance, then fewer people will tap into Medicaid.  So the government’s strategy to make this happen is three-fold:
  7. If you have to rely on Medicaid for your LTC needs, the state you live in will attach a lien against the equity in your home. So when you, as the Medicaid patient, and your spouse pass away, Medicaid will require repayment for the money they contributed toward your health care and they will take it from your home equity if necessary
  8. One of the most popular locations to receive LTC is your own home. When possible, patients want to stay in the comfort of their own home versus a nursing home or other care facility. And since home health care benefits are available in most LTC policies, this choice now becomes a reality.

Innovative Alternative Strategies for LTC Coverage

Now, after all these justifications for buying LTC Insurance, if you are still one who objects, here are five creative ideas to help sway your thinking:

Idea #1: Purchase an immediate annuity to fund LTC Insurance premiums

Here’s the concept: Take an unproductive asset that’s not producing, (such as a low yielding CD) and use the money instead to set up a single premium immediate annuity (what we call a SPIA). The income stream from the SPIA would then be used to pay the LTC Insurance Premiums.

Idea #2: Have children pay the premiums on the LTC Insurance

Often, parents who are in the prime age bracket for purchasing LTC insurance, have affluent children who can take advantage of the annual gift tax exclusion and the ability to pay health insurance for others. Currently, LTC Insurance premiums are an exception to these rules. Anyone may pay eligible LTC insurance premiums for someone else without it being treated as a gift and taxed.

Idea #3: A solution where you might not need any cash at all

Do you have an older life insurance policy with a substantial cash value and no LTC coverage attached? Well, under Section 1035 of the tax code, you could do a tax-free exchange of the surrender value of the old life policy and transfer that money into a new Combination Life and LTC Insurance Policy without spending any money out-of-pocket. I’ll talk more about these new Life/LTC combo products in a minute

Idea #4: Take advantage of a Reverse Mortgage

In this scenario, if you are 62 years or older and you qualify, then the proceeds of the reverse mortgage could be distributed to you (the homeowner) as a fixed monthly payment, from which, a portion could then be used to pay your LTC Insurance premiums.

To learn more about how Reverse Mortgages can help you tap the dormant equity in your home, see my Special Report: A Primer on Reverse Mortgages.

Idea #5: Purchase a LTC Insurance Combination Plan

In the market today, we have some very innovative Combination products, also known as asset-based LTCI which use life insurance or annuities as the foundation for LTC protection. These combination products appeal to people who understand the win-win approach: Win if you need LTC benefits and win if you don’t.

The concept is that in the event you don’t need the LTC benefits, your unused premiums won’t be wasted. Instead, those premiums are distributed to your beneficiaries as a death benefit (sometimes income tax-free).

In Summary:

Long Term Care is expensive. It is the greatest uninsured risk that Americans face today. Paying for it on your own out of income or assets poses a serious threat to your retirement plans.

Get over your denial that LTC will never happen to you. Please talk to your families and have a plan. The chance of needing LTC is very high. Without proper protection, you risk the emotional and financial well-being of your entire family. It’s far better to create a plan 10 years too soon than one day too late.

How to Assemble the Retirement Puzzle for Financial Peace of Mind