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July 28, 2017

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Long Term Care Options - The Basics

February 27, 2017

 

No one needs a long term care policy, but everyone needs to know their options for long term care.  I've adopted this view and so far in all my discussions with clients and prospective clients, I have not seen a reason to think differently. 

 

The reason no one needs a long term care policy is that Medicaid will pay for your care.  It may not be what you want and the service may not be where you want, but it will be paid for.  Medicaid also requires that you spend almost all of your own assets before it will pay anything.  This situation is not optimal for most people who have built up a substantial asset base.  It's also emotionally difficult for a spouse or children. 

 

A long term care policy can protect personal assets.  The challenge is that long term care insurance isn't cheap.  It's the single largest factor that prevents people from purchasing long term care insurance.  However, there are many advantages with more recent policies.

 

First, in a traditional policy, many states now have partnership programs that allow you to retain personal assets and still receive Medicaid when the policy benefits run out.  For example, if your policy pays you $200,000 in benefits, you can keep $200,000 in assets and still receive Medicaid benefits.  The challenge with a traditional policy is that it's a "use it or lose it policy."  It's benefits are great, but if you never use the policy, You lose 100% of your premiums paid. Current projections are that 70% of people will need long term care.  That means there is a 30% chance that you'll never use the policy benefits. For couples, there is a 91% probability of one of you using the policy, so this makes more sense for couples.

 

Second, some carriers have developed asset based policies that include:

  1. 100% return of premiums

  2. A life insurance benefit in case the policy is not used

  3. Cash value that can be used in loans to yourself

These policies are often on the surface more expensive, but the purpose of these policies is to provide the best of both worlds.  The savings features if you do not use the policy are not great, but they are competitive with money market rates or better.  This way, if you do not use the policy, you are not out $60,000 to $100,000 of premiums.  This policy is best for someone who has a fair amount of assets saved and can afford to take a cash position.  These types of policies are also flexible in some features that allow you to either develop cash value faster or provide more benefits sooner.  This policy is best for people who can see the policy as a transfer of assets from one holding to another rather than as an expense.  The policies have guaranteed premiums and are usually paid off in a lump sum or up to ten years.

 

All policies now allow the client to choose

  1. The desired amount of coverage per month

  2. The number of months of coverage

  3. The level of inflation protection desired

These factors along with an applicant's age and health history determine the rates. This allows a client to choose a policy that is affordable, even if it only covers a portion of expected long term care expenses.

 

While a person can save for long term care, most experts recommend that unless you have at least $1.5 million or more, a person should consider a long term care policy.  In many cases a person will not be able to save the money necessary to pay for long term care by him or herself.  As with any insurance policy, the goal is risk management.  What can you afford to do on your own and what you can't afford to lose are the factors to consider.  If you don't know, it's always best to consult with an agent an have illustrations of policies run for you.  If you are not confident in your agents' or your own ability to determine whether or not a policy is right or you, you can always consult with a financial adviser who can run some numbers for you.  You may not need a policy, but you do need to know your options. 

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