During the Covid-19 pandemic, we are reminded that our health remains one of the biggest risks. We plan for our future goals with the likelihood that we will remain healthy as one of the primary assumptions for making enough to save and invest for the future. In order to mitigate the risk of ill health, we can use insurance to transfer some of that risk to insurance companies who specialize in risk management. Health insurance is one essential component, and life and disability insurance also help protect our plans. However, when we think about our long-term retirement goals, we often disregard or discount long-term care insurance. Or we start to consider long-term care (LTC) insurance when we are older or less healthy and quickly realize the premiums are too expensive at that point.
While 70% of people over the age of 65 will need some type of long-term care (according to the Wall Street Journal 6/6/19), it is easy to imagine that we are going to be the part of the group that doesn’t need it. Plus, let’s be honest, it is unpleasant to think about when there are so many other hurtles and life events that will likely occur before we are faced with the need for long-term care. There are many reasons people put off or decide against Long-term care insurance, chief among them is the perceived high costs that they would rather allocate elsewhere.
As a financial planner, I agree that traditional LTC insurance is cost prohibitive for some clients. However, what I have discovered is that most people do not understand the varied options available on the market today. Today there are many options such as Hybrid life and LTC policies that guarantee a death benefit or return of premium. They also do not understand the potential benefits of having, at least, some LTC insurance vs. a purchasing a plan that will cover all conceivable variations but at great cost for annual premiums.
I’m talking about participating LTC insurance plans. These plans are part of state sponsored programs that allow you to shelter fund equal to the face amount of the LTC policy from Medicaid asset tests. Let’s say, you would rather retain the risk and pay for LTC out-of-pocket. Fr example, you expect that your life savings would be exhausted after a certain amount of time, and then you will qualify for Medicaid. This involves spending down your assets until you are considered impoverished. While I won’t go into the details here, the government has an extensive methodology to search for these assets and to recover expenses from your estate after your death to help pay for Medicaid expenses. To qualify for Medicaid, you have strict limits for the amount of income and savings you can retain. For a brief discussion of the ins and outs of Medicaid asset tests click here: verywellhealth. The point I want to make here is that you can only retain $2000 of wealth in a bank account or an investment account as well as strict limits to monthly income, some of which will need to go to your medical care.
This is where the benefits of a qualified LTC insurance plan is extremely helpful! Suppose you need long-term care and you have an qualified, participating LTC Insurance policy for $150,000. This could pay for a little over a year of LTC expenses. However, once that is used up, your remaining assets would need to be used and spent down until you qualify for Medicaid. However, with a plan such as this, you can retain $150,000 that would not have to be spent on LTC expenses! This could be used to pass on to your children or your spouse…or, perhaps, more importantly, it could be used to make your life in a nursing home paid for by Medicaid much more comfortable! Whether it is internet expenses, cable television, phone service, magazine subscriptions, or payments for additional care, you would have the ability to spend this retained wealth any way you see fit.
I don’t know about you, but I would feel much more secure knowing that I had an emergency fund that I could use to make my quality of life a little better during my time in a Medicaid funded nursing home.
There are many ways to prepare for long-term care expenses. I would be glad to talk with you about your options.