When a client tells me that Long Term Care insurance is “expensive,” my response is invariably, “compared to what?” The insurance on our two cars plus a van we use only on vacation is $1200 per year–and we only have liability. If we had a wreck, it would pay for the other guy’s car. We would get nothing!
Our homeowners insurance is about $700, and it was the least expensive company we could find. We’ve never had to use it–but we aren’t even tempted to drop it.
Our health insurance is the pits–and if you are paying for private health insurance, for COBRA or simply footing your own medical bill, I’ll bet yours is about the same. We pay a whopping $6000 per year have no vision or dental care, and we each have a $2500 annual deductible. Unless we have to be hospitalized, we never will meet those deductibles, but we’ll pay that bill every month and be thankful just to have it.
In contrast, our LTCi bill for a policy that covers both of us for five years at a benefit of $150 per day is about $160 per month, or just under $2000 for the year. If we should need to use it, we have a $547, 500 pot of money to spend. Furthermore, we have the paid-up survivor’s rider, meaning one of us will stop paying the premium when the first one dies. None of our other insurance policies–not even our homeowners–will ever give us so much for so little!
Creative Planning
When to buy
The best time to buy LTCi is in your late 40s to early 50s. In your younger years, a private disability policy that replaces your income is more appropriate. Furthermore, some companies allow you to convert disability insurance to LTCi at age 65–without medical underwriting.
For most people, the best time to purchase LTCi is in mid-life when you are also making more detailed plans for retirement. Look for a company that does NOT have periodic rate increases, such as an automatic increase every five years. The best companies try to price the new policies in such a way as to absorb the increased costs of health care, thereby protecting clients with the oldest policies against multiple rate increases. Be aware, however, that any company could have a rate increase in LTCi because it is health insurance.
How to pay
No one can “afford” to add another monthly bill to their budget. That’s because, no matter how much money we have, most of us live according to our income, hopefully putting some aside for retirement, but otherwise maintaining a lifestyle equal to our income. Very few people have an extra hundred or two just waiting for some insurance agent to suggest a way to spend it. You will have to evaluate your finances; you should be able to cover the LTCi without taking food off your table or letting the light bill go unpaid.
Most people pay with a monthly bank-draft. If you don’t have a large bank account, it is usually easier to spread the payments out over the entire year. You do have the option, however, of paying quarterly, semi-annually or annually. You can also change your mode of payment at any time once the policy is in place.
Paying annually
Many people, especially retirees, begin their LTCi payments on a monthly bank-draft and switch to annual payment in later years. Paying annually saves money, since all companies charge a few dollars extra for the monthly processing. If you are still paying taxes and receiving a refund in April, it may be worth planning to use some of that refund to pay off the annual premium and then pay it annually at that time.
Another way to pay for LTCi–and keep all of your income in your pocket at the same time–is to take advantage of IRA accounts, mutual fund returns, or annuities. If you can find a company that sells both annuities and insurance, you will have an ideal situation. You can reposition an IRA into a good, high interest fixed annuity and use some of the interest to pay your LTCi premium. Be sure to look for a fixed annuity, not a variable one as it is impossible to lose money on a fixed annuity. Furthermore, if it is qualified money, the government will force you to take a distribution each year after you turn 70 Ѕ. You can use that required distribution to pay your premium, and if you either itemize your taxes or have your own business, you will be able to deduct most of the premium from your taxable income.
Planning to use an annuity to finance your LTCi has other advantages as well. An annuity is tax deferred until you withdraw it, meaning you can put more of your retirement income in your pocket. Also, while you can draw on it during your life, it works similar to life insurance when you die in that it is distributed directly to your beneficiary without going through probate.
Paying for LTCi without taking it directly from your income just takes a bit of advance planning. If your premium is about $2,000 per year, for example, a $67,000 fixed annuity would pay your LTCi with interest to spare. Your principle would never be touched!
You want it, but truly do not have the premium
Some people have experienced the hardships of taking care of a senior parent or the anguish of watching them lose everything to a nursing home. The year 2005 was the last year seniors could transfer their assets under the current three year look back period. In 2011, the government can look back five years, meaning assets transferred in 2006 will be subject to penalty. Many people who have seen their parents lose nearly everything would love to have LTCi, but either are not medically qualified or truly can’t afford it.
If you are not medically qualified, there is little anyone can do. However, if it is a matter of money, be frank with your agent. After all, even a year or two with a benefit as low as $100 a day is better than no coverage at all.
If you can’t afford LTCi, however, and know that you really should have it, you should bring the family together to discuss it. Which of them would be willing or able to take care of you? Would each family member be willing to chip in a small amount now rather than try to come up with $4000 or more per month later on to prevent you from losing the family home?
The real purpose of LTCi
In the long run, LTCi is not about you. Yes, it provides you with care when you need it, but it is really about your family. It is about sparing them the expense, the frustration, the guilt associated with caring for an ailing senior when they have their own share of problems. It is about keeping your spouse alive instead of burning out prematurely while taking care of you. According to the Alzheimer’s Foundation, 65% of the caregivers die before the person they are taking care of. Also, more than 70% of those caregivers are eventually a daughter or daughter-in-law who will do most of the work because none of the other family members will do it. The end result is contention within the family as those who do the work will feel like they have contributed more than their share. Do you really want to be remembered as a source of conflict? They deserve to be included now. LTCi really is all about the ones you love.