When we are young and healthy, we imagine that we are “bulletproof.” We prefer not think about how we would take care of ourselves and our families financially if we became ill or disabled. But that’s precisely when we should think about it – long before a debilitating health event occurs.
According to the National Care Planning Council, about 60% of Americans will need some type of long-term care during their lifetimes, whether as a result of an illness, injury, disability, or simply old age. “Long term” can mean weeks, months, years, or even decades.
When you are planning for retirement, you should definitely plan for long-term care, according to Regina Mohler, Vice President and Manager of Life Insurance for Hilliard Lyons. “It’s a perfect time to review your options for funding long-term care. And if you’re trying to preserve assets for a spouse or children, long-term care planning can be an essential part of estate planning as well.” Individuals between 45 and 65 years old are the prime age group for long-term care products, Mohler said. As with health insurance, long-term care policies require medical under-writing. Carriers review your medical history and decide whether you fall within their guidelines to qualify for the insurance, Mohler said. “The younger and healthier you are, the more options you have.”
Traditional long-term care insurance
The traditional long-term-care insurance product is a separate, standalone policy. As with life or health insurance, you pay a periodic premium, and the carrier pays claims in the event of a disability. Premium costs typically rise as the policyholder ages.
Traditional policies once represented a large segment of the market, but many carriers have abandoned this market in recent years because they underpriced their premiums and then had a high number of expensive claims. As a result, only a handful of carriers still offer standalone policies, and their medical underwriting standards can be quite brisk.
Non-traditional choices you may not know about
“Many people think that with so many carriers leaving the traditional long-term care insurance market, there aren’t many choices, but the industry has responded to create some additional, very good options,” Mohler said.
Here are three other choices you may want to consider:
- Insurance riders. One easy option for long-term care benefits is to attach a long-term care rider to a traditional life insurance policy. “If you have a long-term care need, you simply advance funds out this life insurance benefit,” said Mohler.
- Asset-based or linked-benefit insurance products. These products, relatively new to the long-term care insurance market, are typically life insurance policies that leverage a second pool of benefits if the policyholder needs long-term care. Payments can be made from these assets for long-term care expenses. But if care is not needed, assets are transferred to beneficiaries when the policyholder dies. Underwriting also may be more stringent for linked-benefit products than for traditional policies.
“It’s a good option for more established clients who want to reposition assets that they had earmarked for long-term care anyway, because they get a lot more leverage out of the assets,” said Mohler.
- Hybrid annuity products. These operate similarly to asset-based products. Many people already own annuities, so they can simply switch funds over to a product that leverages the amount of interest benefit they would receive from those annuities. “If they need long-term care, they are going to get a higher amount out than if they annuitized the contract,” Mohler said.
How to choose?
To determine the best option, Mohler encourages clients to assess how they would fund long-term care if an accident or illness happened today.
“Maybe they don’t have assets to draw on, so their care would have to come from their income. That’s when a traditional long-term care policy would be a good choice,” she said. “It’s very much like a term life insurance policy, where you ‘pay as you go.’ If I have a more established client, I look at the asset-based products and simply move assets into that particular product, or a hybrid annuity, to gain the needed leverage.”
Don’t assume that the government will help you
If you don’t have long-term care planning in place, you may find yourself at the mercy of government programs, Mohler said, and they have significant limitations.
“Many people think that Medicare and Medicaid are going to pay for their long-term care needs, but in reality, Medicare will pay only for highly skilled care,” she said. “You need to meet a number of criteria, and the care you get also must be expected to improve your condition.” For example, an Alzheimer’s patient likely would not qualify for long-term care under Medicare.
Also, if you don’t have a long-term care plan in place, “you’re going to have to spend down your assets dramatically to qualify for Medicaid – down to about $2,000 in many cases,” Mohler added. These assets can include retirement accounts and even your home. Once you have spent down your assets, all of your income goes toward your care first. It is only the remaining costs that Medicaid will fund.
Yesterday would have been a good day to act
With shrinking options as you age and the limitations of government assistance, Mohler strongly encourages advance planning. “Don’t put it off. None of us can know when a health condition will change the availability of our options.” Peace of mind is a valuable commodity. For many years Hilliard Lyons has helped protect families and their assets from unforeseen harm due to health-related events.