Long Term Care Insurance
Look at the following statistics, which might convince you at least to consider obtaining some kind of long-term care insurance (LTCI).
- On average, 69% of people age 65 or older will need some form of long-term care.
- The national average cost of a private nursing home room in 2018 was $275 daily or $100,000 annually.
- However, in some states the cost is higher: Alaska, $351,000; Massachusetts, $153,000; Connecticut, $165,000; New York, $146,000 ($215K in Manhattan); Oregon, $120,000; Colorado, $108,000 (while in Texas, a mere $78,000!). (Source: seniorliving.org)
- In year 2018, the national average annual cost was $48,000 for assisted living , and $80,000 for in-home care.
- Of Americans who are 65 years old and older, only about 15% have long-term care insurance.
- Unpaid family members and friends provide 83 percent of all long-term care in the U.S.
Do you have LTCI?
Based on the statistics, the answer for most is NO.
Should you have LTCI?
Based on the statistics, the answer is YES! If the average cost of a nursing home stay is $100,000 a year, how many years do you have to stay in that home before spending down a good percentage, if not all, of your wealth?
Why don’t people purchase LTCI?
There are really two reasons people do not buy LTCI. 1) Cost — it can be expensive. 2) Denial — many people have the “it won’t happen to me” attitude when it comes to LTC.
The sad truth is that people who do buy LTCI are often those who have had a loved one or friend feel the devastating effects of LTC costs without having LTCI.
What does LTCI cover?
It depends on the policy purchased. Some cover only nursing home care, while others cover in-home care as well as a number of other expenses. The coverage will have a limit (usually a daily or monthly limit) over a set period of years, or a lifetime total.
What triggers LTCI coverage to kick in?
Typically, it’s when you cannot perform “2 of 6 ADLs” without help. ADL stands for activities of daily living: Bathing, Dressing, Toileting, Transferring, Continence, and Eating. Cognitive decline (e.g., dementia, Alzheimer’s) also triggers most LTC coverage.
LTCI options
On this website, the terms “long term care insurance” and “LTCI” refer broadly to any insurance product that covers long term care situations, usually home care expenses or institutional care (e.g., nursing homes). Formally speaking, some of these insurance products are not really “long term care” insurance and should not be labeled as such. This is because the benefits paid for long term care are actually so-called “living benefits” (or “accelerated benefits”) based on the account value of a life insurance or annuity policy. Thus, there are several different ways to obtain long term care coverage. Depending on your situation, one may be better for you than another.
Traditional LTCI
This is the most comprehensive, but also the most expensive type of LTCI. You pay an annual premium of $2,500-$10,000+ a year (depending on your age); and if you incur LTC expenses, the policy will pay up to its daily limit. Traditional LTCI is like term life insurance. If you don’t use it, you do not get the premiums back.
Asset-Based LTC
Asset-based LTC is a life insurance policy or annuity with a LTC rider. The policy owner buys a policy and pays an extra fee for LTC protection. Some of these are hybrid policies in which part of the total premium is classified under life insurance and the other part of the premium is treated as LTC. Under the Pension Protection Act (PPA) of 2006, distributions from certain annuities are tax-free if used for LTC. The benefits of a PPA-qualified annuity could include: tax-free, guaranteed growth; tax-free distributions for LTC; distributions for income (usual taxation); payment of death benefit to heirs from un-used funds; leveraged LTC benefits. “Leveraged LTC benefits” means that that the annuity company pays some multiple (e.g., 2X or 3x) of the base account value for LTC if and when the base value is depleted. PPA-annuities can also be designed to provide a lifetime LTC benefit. The PPA allows a tax-free 1035 exchange of an existing tax-deferred annuity to a PPA-qualified annuity. Life insurance policies are also eligible for a 1035 exchange from a policy without linked LTC benefits to a policy offering LTC benefits. Unfortunately, money in pre-tax tax-deferred annuities, such as IRA, 401(k), and 403(b) plans, is not available for the 1035 exchange. Nevertheless, other solutions are available for leveraging money from pre-tax plans to tax-free LTC benefits.
Single Premium Life Insurance policies that have LTC benefit. Most people are not aware that they can purchase a life insurance policy that has an LTC benefit. Why would you purchase this type of policy? Because if you ever need the money you paid in premiums, it is accessible. That’s right. If you paid a $200,000 one-time premium for a policy and needed the money in years two, three, or whenever, you could ask the insurance company for a refund of your entire premium.
Additionally, some policies grow money in the policy similar to money market/certificate of deposits. This type of policy is a good fit for an older client who has money sitting in CDs and money market accounts because they think they may need the money some day and, therefore, do not want to allocate it to buying traditional LTCI.
To view/listen to a video presentation on SPL policies, please click on the picture below.
Living Benefits
Living benefits (“accelerated benefits”) are based on the underlying account value of a life insurance policy or an annuity. If the living benefits are triggered (e.g., if two ADLs cannot be performed), then a certain portion of a policy’s death or annuity benefits are accelerated.
Retirement Life™ (RL). As you can read by clicking here, growing wealth through the use of RL can be a terrific idea for many. A nice by-product of using a RL product is that the policy comes with a FREE LTCI rider. Essentially, if you cannot perform two of six ADLs, the insurance company will give you a percentage of your death benefit early (tax-free). This type of coverage might not be as good as a traditional LTCI policy; but if you are buying a policy to build wealth, why not buy one with a FREE LTCI benefit?
Deducting the cost for LTCI
Most people do not know how to write off formal LTCI premiums. While not everyone can do so, some can. If you would like to learn how to obtain a 100% deduction for LTCI premiums, please click here.
