Aging Workforce Solutions

LONG-TERM CARE INSURANCE


Long-term care insurance is one of the most difficult to explain-and thus misunderstand-products in the spectrum of insurance and risk management products in the United States.


Our population demographics have shifted in the past few decades.  The group of 65-69 year olds are the fastest growing 5 year band demographic currently by sheer numbers (2017).  Centenarians are the fastest growing “segment” by percentages.


Medical advances are driving these increases.  While they have increased longevity, that has also spurred the need for supportive services to assist seniors whose physical capabilities are lacking due to the increased morbidity of advanced aging. 


For the challenges-cognitive, mobility and medically related-the cost of care can easily exceed $50,000per year.  For dementia and or severely mobility challenged (bed or wheelchair bound) the costs can exceed $100, 000 annually. One in three caregivers predecease the care recipient.  This if often caused by the excessive stress over the period of care.


Long-term care insurance helps to leverage assets be used to pay for care services.  While many retirees believe they can “self-insure” against the cost of services, they often miscalculate the impact of costs.  These miscalculations can include, but not be limited to:

  • The duration of care-dementia patients can often require care for 10 years or more.
  • The majority of care-over 90%-is custodial (non-medical) care.  Custodial expenses are not deductible under the current IRS guidelines. The increased amount of income needed to pay for care often forces a family into a higher tax bracket
  • The principal that the retirement plan calculated to generate income becomes increasingly depleted, leaving less principle to generate income
  • The family members who support the caregiving effort often find their personal and professional lives compromised when they invest their time to coordinate care.  Professionally, this can often cause reduced income, reduced promotion opportunities and retirement plan contributions.
  • Personally, reduced time with family responsibilities creates losses that may never be recouped.
    • It provides leveraged funding, often on a tax-free basis, to pay for care costs, helping to preserve retirement assets.
    • It gives the family time to arrange assets and related planning strategies to optimize lifestyle for all involved.
    • It allows family members to supervise care, versus becoming caregivers themselves.
      • The duration of care-dementia patients can often require care for 10 years or more.
      • The majority of care-over 90%-is custodial (non-medical) care.  Custodial expenses are not deductible under the current IRS guidelines. The increased amount of income needed to pay for care often forces a family into a higher tax bracket
      • The principal that the retirement plan calculated to generate income becomes increasingly depleted, leaving less principle to generate income
      • The family members who support the caregiving effort often find their personal and professional lives compromised when they invest their time to coordinate care.  Professionally, this can often cause reduced income, reduced promotion opportunities and retirement plan contributions.
      • Personally, reduced time with family responsibilities creates losses that may never be recouped.
        • It provides leveraged funding, often on a tax-free basis, to pay for care costs, helping to preserve retirement assets.
        • It gives the family time to arrange assets and related planning strategies to optimize lifestyle for all involved.
        • It allows family members to supervise care, versus becoming caregivers themselves.

So how does long-term care insurance fill these voids?


WHY PUT LONG-TERM CARE INSURANCE IN YOUR PORTFOLIO?

 

It allows families to do more with less. Long-term care insurance creates asset pools specifically designed to address care costs

 

A)     Payments are often tax-advantaged

B)      Direct pay to providers can be arranged

C)      Volatility in conventional asset portfolios may not be suitable for withdrawals in down markets


TYPES OF LONG-TERM CARE INSURANCE

 

1)    Partnership Concept

Number of Days (years) x Daily Benefit Amount x Inflation Amount

365 x Daily Initial Benefit x Number of years

365 x 300 x 5 = 547,500      Compounds at 5% annually

Bought at 65        Claim begins at 70 (5 years)   Pool of money begins at $698, 764

Bought at Age 65    Claim begins at 85 (20 years)  Pool of money at begins at   $1,452, 680

Tax exempt if used to pay for qualified care costs

Amount of benefit received is equal to the amount of asset protection, allowing the individual to qualify for Medicaid

POSITIVES: Partnerships, amount of leverage possibly the highest

NEGATIVES:  Premiums not guaranteed; often must be paid for life or until policy holder goes on claim

 

 

2)    Traditional Life Insurance/Hybrid LTC Insurance

A percentage of the death benefit is allocated toward care.

A)  When done on a monthly basis

1,000,000 face amount    2%/month = 20,000/month.   4%/month = 40,000/month

How long until I will use the benefit? 

B)  Percentage of death benefit in total is allocated toward care, sometimes based on degree of cause

(Cancer-stage 1,2,3,etc)

POSITIVES: Stronger guarantees, guaranteed return on investment if held to death or care need

NEGATIVES:  If interest rate sensitive, low rates make it more expensive

 

 

 

3)     Lump Sum/Short Pay Life Insurance/LTC Hybrid

Premium creates a multiple of Death Benefit

$100,000 buys $150,000 DB.  Multiple at age is 4 times DB.  Pool of money for care is $600,000

Can have inflation (better for younger), or no inflation component (better for older)

POSITIVES:  Possible return of premium up to 100% if/when policy is surrendered

Lower internal costs over long-term

“2nd to Die” structure reduces costs, allows for underwriting of one life with health issues

NEGATIVES:  Higher up-front costs in early years.  Initial premium is used up first before leveraged component



 

4)    Life Insurance Settlements

$50,000 minimum policy face amount

Expected “settled amount” 1/3 to 2/3 of face amount

Amount for care costs potentially tax exempt (if used for qualified care)

Payments can be made directly to providers through no cost trust

Remaining amount is passed on to designated beneficiaries

Calculated based on:    Age, medical condition, type of policy, amount of annual premium, amount of cash value in the policy.

POSITIVES:  Current premium outlays reduced or eliminated.

NEGATIVES:  Tax-free death benefit reduced. 

 

Please click here to receive “6 Mistakes in Long-Term Care Planning”, and or to coordinate a no-cost analysis to evaluate the family’s preparedness in addressing potential care scenarios. Policy design can be more easily discussed based on each family’s situation.