When most people think of retirement, they imagine spending their time traveling and pursuing the hobbies and activities that bring them the greatest joy. Few consider that as life expectancies increase, so too do the risks that individuals will eventually require costly long-term care for assistance with daily living activities. By failing to prepare in advance of this reality, there is a high probability that you will run out of resources to manage and finance your long-term care in the future.
According to the most recent Genworth Cost of Care Study, living longer has its advantages, but it also increases the likelihood of needing long-term care (LTC), which continues to rise in price each year at a rate that, in some instances, exceeding the national rate of inflation. In 2018, the median annual cost for a private room in a nursing home was $100,375 and $50,336 for an in-home health aid. Medicare covers only a limited number of days in a nursing home and similarly restricts approval of costs for in-home care. The best way to prepare for these expenses and ensure you continue to have a say in the care you receive, proper time should be spent budgeting and investigating the changing landscape of long-term care insurance options.
When to begin thinking about long-term care insurance will depend on your lifestyle and genetics. In general, the annual costs for LTC policies increase as you age. The longer you wait to get insured, the more likely you will have a medical condition that may make it more difficult to secure coverage. On the other hand, the younger you are, the more premiums you will pay over your lifetime. In most instances, it is prudent to begin thinking about long-term care when you turn 50 years old.
The two basic types of long-term care insurance are annual pay and asset-based policies.
With an annual pay policy, you pay annual premiums with the expectation that the policy will pay out benefits in the amount and for the amount of time outlined in the policy to meet your anticipated needs. Under certain circumstances, you may be able to deduct a portion of those premiums from your taxes. Consult with an experienced tax advisor who understands your unique situation.
If you pass away before using any of the LTC benefits of an annual pay policy, you generally will forfeit the premiums you paid into the plan. However, many policies provide an option that allows you add a nonforfeiture benefit rider that requires you pay higher premiums in return for the guarantee of a partial refund of premiums to you or your beneficiaries should the policy lapse due to death or stopped payments.
Unlike an annual pay LTC policy, an asset-based long-term care policy that did not pay out benefits during an individual’s lifetime may return the policyholder’s initial payment. These hybrid annuity and life-insurance based plans require that you make one or multiple upfront premium payments, typically of substantial value, which are invested in life insurance or annuity contracts that pay a guaranteed rate of return. When long-term care is needed, you may access the life insurance death benefit or annuity value free of income taxes to pay for qualifying expenses. Should a policyholders pass away without incurring long-term care expenses, the full death benefits may ultimately be returned to their heirs. Should policyholders surrender their LTC insurance policies, they may get back a substantial portion of the initial payment they paid into the plan.
As the long-term care insurance industry continues to evolve, new products are constantly being introduced to better meet the needs of an aging population. While these policies may not be available or appropriate for everyone, it is critical that you discuss with family members and/or advisors how you wish to be cared for, who you would want to oversee and deliver the care you need, and how can you fund that care when you need it. The guidance of an experienced financial advisor is a good way to start the conversation and review the pros and cons of all the long-term care options available to you.
About the Author: Scott Montgomery is a director with Provenance Wealth Advisors, an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors and Accountants, and a registered representative with Raymond James Financial Services. For more information, call (954) 712-8888 or email firstname.lastname@example.org.
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Scott Montgomery is a registered representative of and offers securities through Raymond James Financial Services, Inc., Member FINRA/SIPC.
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Long-Term Care insurance policies have exclusions and/or limitations. The cost and availability of Long-Term Care insurance depends on factors such as age, health, and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of Long-Term Care insurance. Guarantees are based on the claims paying ability of the insurance company.