To review: last week I wrote about the need for Long-Term Care Insurance, answering the essential question: Do I need it? The short answer is Yes, you do. As we age, we will either: a) continue to get older, with increasing health issues or b) die. So, if you do not die at an earlier age, chances are pretty good you will need some type of long-term care assistance.
Today’s question then, is “What are my options?”.
Traditional Long-Term Care Insurance:
This is a policy that is designed only to provide assistance once you have reached a certain threshold of physical needs or mental deterioration or memory. To obtain it you will contact an insurance company or agent, and request a quote for this type of insurance. Here are some recommended elements to consider:
- You need to be in reasonably good health when you apply, with no or limited chronic health issues. We recommend purchasing this type of policy between ages 50 and 60.
- The newer policies typically include benefits for home care and assisted living, as well as the highest level of care, which is the nursing home, should that be necessary.
- You are trying to supplement long-term care costs, not try to cover ALL your costs with this type of insurance. So, work with your agent to select the following elements:
- A 90-day elimination period before the benefit kicks in, once your health needs qualify you for benefits.
- A benefit period of three years, often with a “pooled” benefit option which you may share with your spouse.
- A daily benefit (how much the insurance would pay per day)- often between $100 and $150 per day and up.
- Some type of inflation protection, so the benefits grow to keep pace with the inflation of medical costs.
- You will make premium payments until you qualify for the benefits, at which point premiums cease. If you do not use the benefits, there are no residual payments to beneficiaries.
- If you are part of an employer or other group that offers LTC, your policy costs will typically be significantly less than if you purchase a single policy.
Asset-based Long-Term Care:
Once again you will work with an insurance company or agent to purchase a different type of long-term care policy, that is often referred to as a “Hybrid” policy, because it covers two different scenarios. One is a long-term care benefit, but the other is some type of death benefit, in case you do not use any or all of the long-term care benefit, and a beneficiary will receive the remainder. There are a couple of different ways to purchase this type of benefit:
- One is a hybrid life insurance with a long-term care rider
- The other is an annuity with a long-term care rider
These policies are typically purchased with a lump sum or time-limited premiums, which is different from the traditional long-term care policies discussed above. There are some additional options if you have an older life insurance policy or annuity, you can convert some of them into one of these hybrid types of policies. Because these policies provide a bit more flexibility, they can be less cost efficient than the traditional long-term care policies. It is well worth your time to have an insurance agent or financial advisor review your existing policies to help you determine if this is an option for you.
While our best recommendation is to purchase some type of insurance policy against future physical needs, you may be someone who just wants to save for their own future needs, or you may have enough assets that you will easily be able to fund your future needs without any concern- those with assets of $5 million and up in current dollars should not have a problem funding those needs.
But if you do not possess that level of resources, you could set up a separate account that is specifically designated for future long-term care needs that you contribute to regularly. You may also want to consider investing those funds in order to achieve a higher return than what you will currently receive in interest, particularly if you start saving with 10 to 15 years before you expect to need the funds.
For individuals who have accumulated significant equity in their homes, a reverse mortgage could provide needed funds for care, especially for those who wish to remain in their homes. It may also serve as a resource for those who could not qualify for other types of long-term care insurance due to health issues.
Both homeowners must be at least age 62 (in Texas), and will have to undergo an initial evaluation with counseling to ensure you understand how the reverse mortgage works. The company that approves your reverse mortgage will pay you in a variety of ways: a line of credit, monthly payments, paying off the remainder of your mortgage, or a combination of these payment options. You will still live in your home, and must be able to stay up to date with maintenance, repairs and taxes on the home, but a reverse mortgage could provide the liquidity that you would not otherwise possess.
If you are interested in pursuing this option, we recommend you look into the HECM or Home Equity Conversion Mortgage as they are FHA insured. Once you move out of your home, it will either need to be sold to pay back the “loan” or the reverse mortgage lender will assume ownership of the property.
A Few Final Thoughts…
Planning for future needs is a critical component of every individual’s future, and also for our family members. These are conversations that may be difficult to initiate, but go hand in hand with planning your estates by virtue of wills, powers of attorney, trusts, etc. We shared in our first blog on this topic some of the reasons that people do not want to deal with this issue, and the mistaken beliefs that often play a part. We recommend that everyone make a concerted effort to have this conversation with your parents, adult children and other family members whose well-being could impact you. Then talk with your financial advisors, and your insurance advisors to find the best solutions for you and your family.