Here are a few options for long-term care that we believe you should know.
Traditional Long-Term Care
This is the most common option. Traditional long-term care is where you pay monthly premiums to access a certain amount of benefit to pay for long-term care expenses. However, there is a catch. Your monthly premium, called “guaranteed level premiums,” are not guaranteed to be level at all. Usually, in your late 60s or early 70s, you will get a letter informing you that your “guaranteed level premiums” have just gone up about 60%. This is where you panic and cancel your coverage because you cannot afford the new premiums, or you cut your benefit in half to keep the premium low. Either way, the insurance company wins. We want to try to make sure you know what is coming so that you don’t panic and make the wrong move.
Whole Life Policy
The next option is when an insurance salesman reminds you that if you were to have a heart attack and die you would get nothing from your traditional long term care coverage, since you never entered a facility. They are correct. Now, he will tell you that you should buy a whole life policy from him and put a long-term care rider on it, so you can receive your benefit either way; by death or by going into a long-term care facility. Either way, you win. The problem is that whole life is very expensive and sometimes difficult to fit into your retirement budget.
Self-Insuring
We sell long-term care insurance yet, because we are fiduciaries, most of our clients self-insure. We show them, mathematically, how they already have these funds in their plans to take care of the long-term care risk exposure.
Asset Based Long-Term Care
This option is where you have an account that you add savings to each month and each year. It’s a totally liquid account. You try to get $100K in this account because it may pay about two times death benefit (2 X $100K) or about a four times long-term care benefit (4 X $100K). The problem here is finding a way to save $100K each.
Safe Harbor Trusts
Long ago, people could move their assets to a sibling and appear to have no assets. When the long-term care bills came, the expectation was for Medicaid and the taxpayer to pick up the tab. The IRS saw this plan and added a five year look back from date of diagnosis, so the IRS could pull all of those assets back into your estate to pay for your own long-term care expenses; therefore, gutting the long-term care strategy of using Safe Harbor trusts.
Divorce
Finally, divorce. Sadly, there are many couples that cannot afford any other option than to try to financially survive by using divorce law. Fortunately, we have never had to recommend this option to any of our clients.
