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To Long-Term Care Plan or Not to Long-Term Care Plan? That is the Question

February 20, 2017

 

 

“If you fail to plan, you plan to fail” is a common quote that’s been around as long as I can remember.  How many times do I meet someone who is over forty and still has no plan for their long-term care.

I understand it.  Even If you’ve been through a difficult time with an aging parent or grandparent, you still think your time is far away.  It’s difficult to create a plan for forty to fifty years from now.  Given that many people don’t even plan for their retirement, I do understand.

For those of you reading this post, I imagine that you have a retirement plan.  You may not be on your timeline, but you’ve at least looked at a plan.  One thing that can throw off your plan is the potential need for long term care. 

Why have a Long-Term Care plan?

There are several reasons to have a long-term care plan.

  1. If you are an individual, current statistics say there is a seventy percent chance of you needing some sort of long term care.  For a couple, there is a 91% chance that one of your will need long term care.

  2. Given the rise of Alzheimer’s and other forms of dementia, there is an increased risk that you will need long term care earlier than you think.  Your body may be healthy, but your mind may go.  I recently had a friend whose father developed Alzheimer’s at age seventy-eight.

  3. Long term care needs by themselves could throw your retirement plan off by two to ten years or more.

There are several ways to deal with long term care need.

  1. You can plan to rely on the government.  Currently that tool is Medicaid.  If you don’t have assets to protect or a life partner relying on you, then that may be OK.

  2. You can save for yourself.  This means doing some sort of calculation of your anticipated needs and adding that amount to your retirement plan. 

  3. Use some sort of financial vehicle to assist, such as a long-term care insurance policy. 

    1. Traditional long term care insurance

      1. Like term life insurance, this is a use it or lose it policy.  However, in this case, the premium is paid until you use the insurance. 

        1. If you need care young, this is a good thing.

        2. If you need care at an average age, it’s still a good deal, except that you don’t know when premiums will increase.

        3. If you need care later in life, then you could have saved for yourself.

    2. Hybrid long term care policies

      1. Policies that are tied to a whole life insurance policy

        1. Build cash value in case you do not use the policy

        2. Guarantee return of premium.

        3. Provide a small life insurance benefit to your survivors if you do not use the policy or do not use all of the benefits of the policy.

        4. Several options are available within the policies that can radically change the function of the policy and its ability to support your plan.

      2. Policies tied to an annuity

        1. Still have return of premium through annuity payments

        2. Create a regular monthly payout, accelerated in the case of long term care needs.

      3. Whole life insurance policies with LTC riders       

        1. These are not long term care policies, but do provide additional benefits in the case of long term care needs.  This solution works better for people who don’t think they’ll need long term care assistance, but still want some protection.

      4. Annuities with LTC riders.

        1. This product gives a reasonable rate of return guaranteed for as long you live.

        2. Depending on the product, there is a life insurance benefit for your survivors with a bonus attached.

        3. Annuity payments are doubled for up to five years if you have long term care needs.

        4. Depending on the product, you may receive long term care benefits, even if your capital has run out.

Why purchase an insurance product to solve this planning issue?

Most people purchase an insurance or annuity product as part of their long-term care plan because they cannot afford the risk of running out of retirement assets.  For example, in the case of my friend’s father, if he had lived another ten years, there is no way that he could have protected his assets.  He has a living spouse and the spend down requirement for him to receive Medicaid would have been extremely burdensome.  In addition, Medicaid has a five year look back period in most states which reviews gifts to others.  If a grandparent has provided money for a grandchild’s education within the past five years, those gifts will count against the grandparent and the grandparent would have an additional waiting period to qualify for Medicaid. 

If a person in his or her twenties began saving for potential long term care needs as part of a retirement plan and contributed an additional amount to the plan, that person may be able to take care of his or her long-term care needs without other financial products.  For most people by age fifty, retirement planning is about as good as it’s going to be, unless there is room in the person’s budget to save substantial additional capital.  In most cases, it makes sense to use an insurance product to supply at least part of anticipated long term care needs. 

However, how would you ever know if a long-term care product would or wouldn’t help, if that you don’t have a plan?  How can you plan if you haven’t examined the long-term care insurance options available? 

If it’s true that failing to plan is planning to fail, then not reviewing the long-term care options with a qualified long-term care agent is a huge planning blunder.  You owe it to yourself to find a qualified agent and sit down and examine all your options.  You may find that you don’t need or want to purchase a product.  That’s OK, but at least then you aren’t planning to fail.

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