There are many factors that make up our individual health profiles. How these factors play out throughout our lives will dictate how healthy we’ll be later in life. Some people will live healthy vigorous lives until the very end. Others will succumb to chronic and debilitating illnesses. In other words, some people probably won’t need long-term care. Others, however, are much more likely to need such care. The future is uncertain for everybody, though, so everyone should consider the possibility of poor health near the end of their lives. Prudence demands that you ask, “Should I get long term care insurance?” In this quick guide, we’ll review some of the reasons you might add long term care insurance to your retirement and estate plans.
Statistics tell us that with longer life expectancies, demand for long-term care is rising. Longer life expectancy is especially common among women, who live an average of five years longer than men. This often means that women will be living alone in their later years, making them more likely to need long-term care than men. Having an accident or chronic illness greatly increases the chance of needing long-term care, and age only makes this more likely. In fact, a Genworth Financial study investigating the state of long-term care found that seven out of ten people will need long-term care at some point in their lives.
If you do need long-term care, it’s going to be expensive. The average nursing home charges more than $7,000 per month. A paper published on hhs.gov notes that the average length of long-term care across facility types is 4-5 years. The cash cost for this length of stay is over $300,000. However, even if you “only” need nursing home care for 18 months, that would cost an average of $126,000.
You can see that late-life care is very expensive. A simple way to determine if you should consider adding long-term care insurance is to ask if you have the means to pay $126,000 for care. If not, you should consider purchasing long-term care insurance.
However, even if you do have the means to pay for those costs, you might still want to add long-term care insurance to your retirement and estate planning. Why? Because you might end up using money that you intended to pass on to your heirs to pay for this care. With proper planning and the right long-term care insurance product, you could fund long-term care without tapping savings or other assets in your estate. This preserves whatever estate plan you have in place; passing an inheritance on to your heirs.
If creating guaranteed, tax-free income tax while also protecting against the cost of long-term care is appealing to you, then you really should consider some form of asset-based long-term care insurance. With this strategy, you fund a life insurance policy that can pay you “Living Benefits” if you should need long term care due to:
You can also use an annuity to accomplish the same goals. You simply fund an annuity through recurring deposits, or with several large deposits. These deposits (premiums) accumulate with interest. If you need long-term care, you can use proceeds from your life insurance policy or annuity while you’re still alive. In the case of life insurance, you’d accelerate your death benefit by using the Living Benefits. If you use an annuity, you simply “annuitize” it and begin receiving guaranteed monthly payments. By paying for your long-term care like this, you preserve your existing assets, which you can continue to use as you see fit. Or, you can save them to pass on an inheritance to your family. Either way, you’re covered since your asset-based long-term care product is covering the cost of your long-term care.
The best news is that if you’re fortunate enough to not need long-term care, then the insurance policy or annuity that you fund for your asset-based long-term care will pass on to your heirs, too. You won’t “lose” the benefit of your long-term care insurance. By making a smart plan to cover the potential cost of long-term care, you can also grow a large tax-favored nest egg available to you during your lifetime, and also pass on a substantial inheritance to your heirs. There is no downside to adopting an asset-based long-term care funding strategy.
This concept of preserving assets for estate planning is exactly the opposite of what happens to those without long-term care insurance. For people without long-term care insurance, they end up having to spend whatever savings they have to qualify for Medicaid. Medicaid does pay for long-term care, but it’s only for those people of very limited means. In order to get coverage from your state, you’ll have to “spend down” almost all of your assets, leaving little more than your home and car to your heirs. It can also be upsetting to see your life savings evaporate in a torrent of nursing home bills.
A far better alternative is to make a plan as early as possible and find the right long-term care insurance plan for you. This will give you peace of mind, preserve your financial legacy to your heirs, and fund a comfortable stay in a long-term care facility should you need it at the end of your life.
Unless you’re extremely comfortable financially, you should at least considering adding long-term care insurance. Don’t just rush out and get any old long-term care insurance, though. It’s easy to waste money on the wrong product. To really make the most of long-term care insurance, work with a professional who knows the long-term care landscape. Texas Medicare Advisors has helped thousands of people with Medicare, Social Security income maximization, and long-term care planning needs. Call us today at (512) 900-3008 for a free consultation to get started planning a bulletproof long-term care strategy.
If you decide you want coverage and already have life insurance, you can add a rider for long term care or accelerated death benefits onto your existing life insurance policy. Accelerated death benefits give you a tax-free advance on your death benefit to use for medical care during your lifetime. You can qualify to receive your accelerated death benefit if you have a need for long term care services for an extended period of time or are confined to a nursing home and are incapable of performing activities of daily living (ADL).
The monthly amount you can use toward your nursing home is capped at 2% of your death benefit. The amount toward home health care is half that. Any money that you receive as an accelerated benefit is subtracted from the death benefit you leave to your beneficiaries. These benefits are often more limited than if you have a long term care insurance policy.
Contact Texas Medicare Advisors today to learn more about long term care.
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