I am often asked by clients if Long Term Care insurance costs too much. My response is always, “Compared to what?” Our insurance costs for two cars and a van that we use on vacation are $1200 each year. We have no liability. It would cover the cost of the other guy’s vehicle if we were in an accident. We’d get nothing!
The cost of our homeowners insurance was $700. It was also the cheapest company we could find. It has never been necessary, but we don’t feel compelled to cancel it.
Our health insurance is terrible. Whether you’re paying private insurance, for COBRA, or just your own medical bills, it is almost the same. Our annual premiums are $6000. We have no vision or dental coverage and each have a $2500 deductible. We will not meet our deductibles unless we are hospitalized. However, we will pay the bill each month and be grateful to have it.
Our LTCi bill, which covers us both for five years and provides a benefit of $150 per daily, is $160 per month or just below $2000 for the year. We have $547,500 to spend if we need it. We also have the survivor’s rider (paid-up), which means that one of us will no longer pay the premium if the other dies. We will never get so much from any of our other insurance policies, not even our homeowners.
Creative Planning
When should you buy
LTCi should be purchased between your 40s and 50s. A private disability policy that replaces your income will be more suitable for you in your later years. Some companies also allow you to convert your disability insurance to LTCi at 65 without medical underwriting.
Most people believe that the best time to buy LTCi is mid-life, when you have more detailed retirement plans. You should avoid companies that have automatic rate increases every five years. The best companies price new policies so that they absorb rising costs in health care. This protects clients who have older policies from multiple rate increases. It is possible for any company to increase its LTCi rate because it is insurance that covers health.
How to pay
There is no way anyone can afford to add another bill each month to their monthly budget. This is because most people live on the income they have. We try to save some for retirement but maintain a lifestyle that is equal to our income. Few people have the extra money to pay for an insurance agent’s suggestion. It is important to assess your financial situation. You should be able pay the LTCi without having to eat or leave the lights on.
A monthly bank-draft is the most common way to pay. It is easier to spread out the payments over the year if you don’t have a large account. However, you have the option to pay quarterly, semi-annually, or annually. Once the policy has been in effect, you can change the payment method at any time.
Annual payment
Many people, particularly retirees, start their LTCi payments with a monthly bank-draft, and then switch to an annual payment later in life. Annual payments are more cost-effective than paying monthly, as all companies charge an additional fee for processing. If you still pay taxes and receive a refund in April it might be worth using some of that refund for the annual premium payment.
You can also pay for LTCi using IRAs, mutual fund returns or annuities. You will be in a perfect situation if you find a company that offers both insurance and annuities. An IRA can be repositioned into a high-interest fixed annuity with good interest and you can use some of that interest to pay your LTCi Premium. You can’t lose money with a fixed annuity so make sure you look for one. If it is qualified money, you will be required to take a distribution every year after turning 70 1/2. The required distribution can be used to pay your premium. If you itemize your taxes, or own a business, you’ll be able deduct the majority of the premium from you taxable income.
An annuity can be used to finance your LTCi. There are other benefits. An annuity can be tax-deferred until you withdraw it. This allows you to keep more of your retirement income in your pockets. It is also possible to draw it throughout your life. However, an annuity works in a similar way to life insurance when you pass away. The money is transferred directly to your beneficiary and does not need to go through probate.
It is possible to pay for LTCi without having to take it out of your income. This can be done with a little planning. A $67,000 fixed annuity, which would pay your LTCi interest if your premium is $2,000 per year, would be the best option. Your principle would not be touched!
It’s what you want, but it is not possible to get it.
Many people have had to deal with the difficulties of caring for a senior parent, or the pain of seeing them move into a nursing facility. 2005 was the end of the three-year lookback period for seniors allowing them to transfer assets. The government will now be able to look back five years and penalize assets that were transferred in 2006. Many people who have lost their parents almost everything wish to have LTCi. However, they are either not qualified or can’t afford it.
There is not much anyone can do if you don’t have the right medical qualifications. If it’s a matter money, talk to your agent. Even if you have $100 per day coverage for a year, it is still better than none.
However, if you don’t have the means to pay for LTCi but feel that you need it, it is worth bringing your family members together to discuss the matter. What would each family member be willing to do for you? Each family member would be willing to contribute a small amount to help you save the family home from being lost.
LTCi’s true purpose
LTCi doesn’t really care about you. LTCi provides care for you when you need it but it’s really about your family. It’s about saving them the stress, frustration, and guilt that comes with caring for an elderly person who is ill. It’s about making sure your spouse is healthy and not letting them burn out while you take care of yourself. According to the Alzheimer’s Foundation 65% of caregivers die before the person being cared for. Over 70% of caregivers eventually become a daughter or daughter in law, who will take over the majority of the caregiving work as no other family members can. As the caregivers feel that they have done more than their fair share, there will be contention in the family. Are you willing to be remembered for being a source of conflict? They are worthy to be included. LTCi is about the people you love.
