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Alternative Long Term Care Coverage

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As we age, long-term care insurance offers us a path to living comfortably and independently in our own homes and communities. Long-term care is not always direct medical care, but rather is a range of services and supports that help individuals care for themselves on a daily basis; a key to aging-in-place.

There are advocates of what we refer to as a ‘Good, Better, Best’ approach to long term care insurance protection.  Long term care insurance is basically a commodity in the eyes of consumers and understanding how to effectively give consumers viable choices that will be a benefit to all.

Long term custodial care is hugely expensive. And the cost is not covered by Medicare or supplement policies. Only if you’re truly impoverished, you can turn to your state Medicaid program for coverage – but it is unlikely to offer home care. Instead, you’ll be stuck in a nursing home that is dependent on state Medicaid payments. That probably won’t be your desired choice for care for yourself – or for your parents in your old age.

It’s a problem no matter what your age because we’re experiencing a “Silver Tsunami” of retiring baby boomers and the costs of long-term care can be extremely high. Medicaid is the only option for many seniors, and that’s straining the funding for that safety net. Many people are not eligible for Medicaid, but also cannot afford the expense of care.

Why do we automatically talk about Medicaid when the subject of long-term care is raised? The answer is that Medicaid pays for a significant majority of all long-term care.  Medicaid, the “payer of last resort,” has become the de facto long-term care financer, a situation not expected to change in the foreseeable future.

As a result, long-term care providers and the federal government are bringing lawsuits and mandating claw-back actions against families, insurance companies and legal advisers. Many are turning to filial support laws, which impose a duty upon adult children for the support of their impoverished parents. Medicaid also has the right to sue families in probate court to “claw-back” funds spent on care.  Most people do not understand filial support laws, which are spreading to more states — 28 and counting.

While self-funding, long-term care insurance, Medicaid, and family provided care will continue to be the primary sources of long-term care funding for the foreseeable future, the market is changing and more people are becoming aware of these new and alternative ways in which to pay for long-term care.

While long-term care insurance is one way to fund long-term care expenses, it is not the only option. Policies can be expensive, unavailable (to those who are not healthy enough to purchase them), and many object to the use-it-or-lose-it nature of long-term care insurance. Long-term care expenses can also be financed through a variety of newly developed “hybrid” or so called linked-benefit products.

Annuities now offer tax qualified long-term care benefits. Companies offer fixed annuities with long-term care riders, which enable you to invest the money you might have saved for long-term care into a product that provides a fixed income but also will provide higher payouts if you need long-term care benefits. In some cases, these types of products will double or triple the annuity payment when long-term care is needed.

Additionally, these products can be purchased with a single lump sum payment which might be preferable to long-term care insurance which generally requires life-time payment of premiums and the possibility that premiums will rise significantly (which has occurred with some policies over the past few years). Lastly, annuity hybrid products solve the use-it-or-lose-it problem with long-term care insurance. If the long-term care benefit is not needed, benefits are available for other purposes.

Another alternative is you can convert your life insurance policy for long-term care. There is $27.2 trillion worth of in-force life insurance policies in the United States, according to the National Association of Insurance Commissioners — that’s triple the amount of home equity today. Rather than cancel or drop a policy to save on premiums when faced with long-term care needs, you can use it to pay for home care, assisted-living or nursing home expenses.  Seniors can sell their policy for 30 to 60 percent of its death benefit value and put the money into an irrevocable, tax-free fund designated specifically for their care.

Medicare specifically does not cover chronic or long-term care, and, due to the high cost of such care, the majority of individuals do not have sufficient funds to pay for an extended period. There is also long-term care insurance, but the relatively high premiums and requirement that people are medically qualified tend to reduce its utilization.

Nearly everyone finds it difficult to see themselves needing hands-on assistance with basic living activities like bathing, getting dressed and eating. So they avoid thinking about it all together. The U.S. government reports that 70 percent of people who reach age 65 will require long-term care services at some point in their lives.

The reality is that the longer we live, the greater the likelihood that we may require long-term care. The costs associated with needing long-term care are significant. It may take decades to accumulate the assets you’ll need to retire comfortably; but just a few years of paying for long-term care may threaten a lifetime of savings.

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Tuesday, April 22nd, 2014 Wealth Management

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