Long Term Care


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Affordable Long Term Care


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Presently 60% of those over 65 will need long term care at some point.  Medicare only pays for short term nursing care. Medicaid, on the other hand, will pay for long term nursing. But you must use an approved service provider. In addition, Medicaid will only accept people with very low incomes and very few assets. In order to qualify for Medicaid, you have to deplete your income first.

If you want to preserve your wealth, you would want to look for another option. There are some financial and insurance products that can be adjusted to serve double duty. They are purchased for a primary reason, but may also used to provide some backup protection against the rising cost of nursing care.

With Nursing home Cost’s running $4,000 to $6,000 a month and outpacing inflation, it is a small wonder that most seniors cannot afford the Long term Care insurance premiums. There are low cost Alternatives available for seniors who just can’t afford the rising cost of these Premiums.

Until recently, consumers had few choices when it came to long term care insurance. Traditional policies, which provided a certain amount of selected coverage, were the norm. Policies could be designed to cover care expenses for a few months, or much longer, even providing benefits for the insured’s lifetime.

For example, consumers could purchase coverage that would provide $100 a day in benefits for a period of three years. When calculated, the $100 daily benefit multiplied by 365 days in a year for 3 years would create a $109,500 “pool of money” available for care. This pool of money would pay for care in a nursing home, assisted living facility, adult day care, or in the personal residence of the policyholder once certain criteria had been met.

When the pool of money was depleted, the traditional policy would provide no more benefits. However, if the policy was never used, the owner would lose the investment of his or her premium payments. Thus, some seniors opted not to purchase these policies, deciding instead to rely on their families or current savings in the event that care became necessary.

With the cost of health care rising rapidly, and a single day in a nursing home costing $175 or more in major cities, self insuring is a risky proposition. Relying on family is an alternative, but not necessarily a viable one. Unfortunately, most families do not have the time, resources or ability to provide around the clock care to a loved one.

The Introduction of Hybrid Policies

The insurance industry realized that consumer needs were not always being met with long term care policies. While traditional policies were satisfactory for some, many others wanted more guarantees in the event their policy was never used.

In response to customer and agent demand, insurance companies have designed what can be best described as hybrid or linked policies. These policies combine the benefits of an annuity or life insurance agreement with a traditional long term care contract. With hybrid policies, the consumer has the guarantee of long term care benefits or, if no care is needed, the promise of insurance benefits to themselves and their beneficiaries.

The Long Term Care Annuity

The newest addition to the hybrid marketplace is the long term care annuity. This product also functions exactly like a fixed annuity, but has a long term care multiplier built into the policy. There is no premium rider attached to this medically underwritten annuity policy. Instead, a portion of the internal return in the contract is used to pay for the long term care benefit.

Long term care coverage is calculated based on the amount of coverage selected when the policy is purchased. The insurance company offers a payout of 200% or 300% of the aggregate policy value over two or three years after the annuity account value is depleted. For example, a policyholder with a $100,000 annuity who had selected and aggregate benefit limit of 300% and a two year benefit factor would have an additional $200,000 available for long term care expenses after the initial $100,000 policy value was depleted.

The policy owner would spend down the $100,000 annuity value over a two year period and then receive the additional $200,000 over a four year period or longer. In this example the contract pays $50,000 a year for a minimum of six years, but care will last longer if less benefit is needed. Again, if long term care is never needed the annuity value would be paid out lump sum to any named beneficiary.

These scenarios are only basic examples of how hybrid policies work. That is to say, the coverage will be different from person to person depending on age, health, gender, premiums and benefits requested. In order to get an accurate proposal, an illustration would be required from the insurance company.

These innovative products can meet consumer demands and provide more guarantees by combining traditional long term care insurance with the advantages of annuity policies. Thus, consumers who utilize hybrid policies can avoid self-insuring against catastrophic long term care related expenses and have the peace of mind associated with a comprehensive plan.

In my experience, over half the people who shun long term care insurance do so because they feel they will never need it. It is difficult to visualize going to a nursing home. Statistically, half of these people will be right.

However, there are a number of scenarios where the person may need some kind of assistance but never see the front door of a nursing home. In fact, most people who need long term care can receive care without ever leaving their home.

When you stop and think about it, the decision not to buy long term care insurance is a decision to self insure. This can be costly and possibly devastating.

The average cost of a nursing home today is $80,000 per year and rising. At that rate, it doesn’t take but a few years to grind through a modest estate. If both the husband and wife need nursing home care, the time to dissipate an estate is cut in half.

Conclusion

These new products, long term care annuities, provide the option to receive long term care benefits only if they are needed. There is no separate long term care insurance policy, no premiums and generally little or no underwriting.

 

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Friday, July 24th, 2015 Wealth Preservation Comments Off on Affordable Long Term Care

Wealth Preservation For Retirees

There are now 40 million Americans over the age of 65, comprising 13 percent of the population. Twenty-five percent of these folks will live past age 90, and 10 percent will live past age 95. What’s more, by 2030, one out of every five Americans is expected to be over age 65.

Failure to plan for care needs in later life can result in the loss of a lifetime of savings and failure to leave a legacy. Nationwide, the average annual cost of nursing home care is more than $90,000.  Couple that with the fact that 70 percent of all Americans will need some form of LTC—half of us in a nursing home—and you have the recipe for financial disaster.

The problem here is that none of us know if we will need long-term care and from what age we will need it. You may develop a condition like MS or Parkinson’s that can strike at a relatively young age regardless of family history. You may have a fall that causes a head injury and need long-term care because you are otherwise healthy but have lost your mental facilities.

The Affordable Care Act, for all its benefits, doesn’t pay for any LTC. Neither does Medicare, which, at best, may cover short-term rehabilitation under very limited circumstances. Medicare provides no coverage whatsoever for custodial care, such as for individuals who need help getting in and out of bed, dressing, bathing or with other activities of daily living.

Thus, we aging Americans are either forced to fend for ourselves and pay for LTC out of pocket (either privately or through insurance) or rely on Medicaid, which was originally intended to be a program for the very poor.

In January 2010, a section of the Pension Protection Act of 2006 took effect. That generated excitement because the law permits federal tax-free treatment of withdrawals made from annuity combos to pay for qualifying long-term care expenses.

Fixed annuities, those CD-like investment vehicles that can provide an income stream for life, are a tough sell in the current low interest rate environment. However, if you’re a risk-averse shopper who can’t pull the trigger on a use-it-or-lose-it long-term care policy, an LTC annuity may be worth exploring.  It’s generally a lot less expensive than a long-term care policy.

The 3-to-1 Annuity/Long-Term Care Hybrid Annuity should be considered for money you are using to self-insure for all or part of potential LTC expenses. You instantly multiply the amount that is available for LTC to two or three times the amount you’ve set aside. You continue to earn safe interest on the money and have some access to it. If you are fortunate enough not to need LTC, the money passes to your loved ones.

You have long-term care benefits that are up to three times the annuity’s value. If you deposit $100,000, you now have up to $300,000 of LTC coverage. The cost of the LTC coverage won’t increase over time and won’t reduce your principal. Interest earnings increase your LTC coverage.

As with a standard long-term care insurance policy, the LTC benefit is triggered when you can’t perform two or more of the six activities of daily living (determined by a licensed medical professional) or are cognitively impaired. Eleven long-term care services are covered, including adult day care, home care, homemaker services, and residence in an assisted living facility or nursing home. There’s no waiting period for reimbursements for home health care or respite care, and a 90-day waiting period for other types of care.

Since this is an annuity, your deposit and accumulated interest are available for other uses. You can withdraw up to 10% of the contract value each year or schedule regular annuity distributions, such as a single life annuity or a joint life annuity covering the lives of both you and your spouse. The amount you don’t distribute or use for long-term care can be transferred to your heirs or other beneficiaries. Keep in mind that any lifetime distributions reduce your LTC benefit.

Another annuity available is a Longevity annuity.  Longevity annuities are much simpler than their name would suggest. In essence, a longevity annuity allows you to to trade a fixed amount of money for the promise of a future stream of income that will begin at a fixed age and continue for the rest of your lifetime. Unlike immediate annuities, which begin to make payments right away, longevity annuities are deferred income annuities, with payments set to start years or even decades into the future.

Earlier this year, the Treasury Department established new rules covering the use of longevity annuities. These insurance products are designed specifically to help retirement savers plan for their future income needs in a predictable way.

The new rules allow participants in 401(k) plans and other employer-sponsored retirement plans to incorporate these longevity annuities into their plan offerings without running afoul of guidelines that require minimum distributions of retirement-account assets past age 70 1/2. Yet even though retirement savers will be able to use annuities more freely, the big question is whether it makes sense for them to do so.

The main benefit of longevity annuities is that they give investors the certainty of knowing they will receive a certain amount of money no matter what happens in the financial markets. Moreover, for those who exceed the typical life expectancy, longevity annuities pay off by ensuring monthly payments as long as you’re alive to receive them.

By putting a portion of your savings aside toward a longevity annuity, you’ll be certain that even if you run out of other assets, you’ll have a minimum baseline income on which to survive. In that way, longevity annuities provide the same financial stability that Social Security does, with the federal payments also continuing until death.

Fixed indexed annuities, however, will continue to be a bright spot in a persistently low interest rate environment, as both a retirement savings accumulation vehicle offering a principal guarantee and growth potential, and as an attractive alternative to certificates of deposit.

Fixed indexed annuities can provide retirees with one of the most reliable and efficient sources of retirement income. “Savvy savers have long understood the merits of indexed annuities, but now a broader cross section of the investing public has entered the marketplace in droves.

With the economy still on shaky ground, many near retirees worry they’ll be working much longer than anticipated. Fixed indexed annuities are a virtually recession-proof bulwark against those kinds of concerns.”

If you know you won’t have a long lifespan, purchase a Life Insurance Combo plan.  It’s an easy sale, because people do want long-term care.” They may like standalone long-term care products, “but they don’t like knowing that if they don’t use it, they will lose (the money they put into) it.” For those people, the life combo — which pays for care if needed and/or at death — is “an attractive product.

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Tuesday, December 23rd, 2014 Wealth Preservation Comments Off on Wealth Preservation For Retirees

Why Self-Insure Long Term Care?

From dissolving the barriers between accumulation and decumulation, the liability of longer lives and a raft of investment choices; retirees will find themselves on a very different pension’s pathway than anyone before them.

In my experience, over half the people who shun long term care insurance do so because they feel they will never need it. It is difficult to visualize going to a nursing home. Statistically, half of these people will be right.  However, there are a number of scenarios where the person may need some kind of assistance but never see the front door of a nursing home. In fact, most people who need long term care can receive care without ever leaving their home.

When you stop and think about it, the decision not to buy long term care insurance is a decision to self insure. This can be costly and possibly devastating.  The average cost of a nursing home today is $80,000 per year and rising. At that rate, it doesn’t take but a few years to grind through a modest estate. If both the husband and wife need nursing home care, the time to dissipate an estate is cut in half.

A person can spend 40 years in a career building a retirement nest egg. They spend another 40+ years conservatively managing their money while trying to keep up with inflation. If they need to go into a nursing home during the last five years of their life, it all could be gone quickly.  Long term care is used for a person who becomes unable to care for themselves and needs assistance. This assistance might in their home, daycare, or nursing home care.

Most people react to a problem only when the problem surfaces. If a person waits to apply for long term care insurance until they are experiencing health problems, any long term care insurance plan may be prohibitively expensive or altogether unavailable.

One reason for the popularity of long-term care insurance policies is Medicaid; this government-sponsored program can pick up the cost of nursing home expenses, but only after patients have already depleted their assets and life savings.

On June 30 of 2009, the government has mandated rules and regulations on restricting the transfer of assets of the elderly. There is now a five year look-back provision if you apply to Medicaid to qualify for the nursing home – the Medicaid nursing home. These restrictive laws are intended to impoverish the healthy spouse.

Before you can qualify to receive, or to enter a nursing home, you must spend down your assets, which means that, if you are of the age where the nursing home may become an issue, in order to protect your wife, or the healthy spouse (i.e. you or your wife, whoever is not sick) you must do Medicaid planning 5 years earlier than the date that you went in to the nursing home.

The Solution: The Long Term Care Insurance That is Not a Policy

The underlying base of an “LTC annuity” is an annuity. Nothing new here; annuities have been around for a hundred years. They are safe, the funds accrue at a competitive interest rate, and the account grows tax-deferred. To form an LTC annuity, the insurance company has built in a “long term care option.” It is not a rider. There is no premium. It is simply an option you elect if long term care is ever needed. Sweet.

To qualify for benefits, a person only needs to lose two of six ADLs (activities of daily living). ADLs are insurance companies’ method of determining the qualification for levels of care. They are eating, bathing, dressing, toileting, transferring (walking) and continence. The person doesn’t have to be in a nursing home. They simply need to have demonstrated the inability to perform two of the six ADLs to qualify to put the long term care option in their annuity in action.

An Example:

If a male, age 60, places $200,000 into an LTC annuity, assuming a conservative interest rate, the policy would grow to $300,000 in ten years. If the $300,000 were converted into a life income, the person would receive $2,200 per month for the balance of their life. An 8.8% return. Not too bad, considering it is guaranteed no matter what. If this person needs long term care at age 70 by virtue of losing two of six ADLs and elected the long term care option, the life income would jump to $4,500 a month.

Long term care annuities, provide the option to receive long term care benefits only if they are needed. There is no separate long term care insurance policy, no premiums and generally little underwriting. Many buy an annuity to secure a stable retirement income. This new kind of annuity adds on coverage for long term care.

The coverage is paid for by the investment return from the annuity. This product also functions exactly like a fixed annuity, but has a long term care multiplier built into the policy. There is no premium rider attached to this medically underwritten annuity policy. Instead, a portion of the internal return in the contract is used to pay for the long term care benefit.

Long term care coverage is calculated based on the amount of coverage selected when the policy is purchased. The insurance company offers a payout of 200% or 300% of the aggregate policy value over two or three years after the annuity account value is depleted.

For example, a policyholder with a $100,000 annuity who had selected an aggregate benefit limit of 300% and a two year benefit factor would have an additional $200,000 available for long term care expenses after the initial $100,000 policy value was depleted.

The policy owner would spend down the $100,000 annuity value over a two year period and then receive the additional $200,000 over a four year period or longer. In this example the contract pays $50,000 a year for a minimum of six years, but care will last longer if less benefit is needed.

Again, if long term care is never needed the annuity value would be paid out lump sum to any named beneficiary. Consumers who utilize hybrid policies can avoid self-insuring against catastrophic long term care related expenses and have the peace of mind associated with a comprehensive plan.

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Wednesday, December 3rd, 2014 Wealth Preservation Comments Off on Why Self-Insure Long Term Care?

Don’t Jeopardize Your Financial Independence

Long-term care refers to a wide range of medical and non-medical services – including custodial help with daily activities, nursing care and skilled nursing services – for people who are physically or mentally unable to care for themselves. Home health care, adult day care, respite care, assisted living and nursing home care all fall into the category of long-term care.

I don’t think a lot of individuals think enough about that uncertainty. In fact, when I talk to older individuals, they see it happening around them, but they say, “Well, that won’t happen to me.” So, there is sort of a head-in-the-sand, ostrich [mentality] to saying, “Well, I won’t have to deal with that.  Even though the longer you live, the more likely some degree of expenditure will be needed to support a frailer existence.

Many Americans assume that Medicare will cover these costs. However, coverage is limited and may still require large out-of-pocket expenses. Also, Medicare pays for skilled nursing facility care only after a discharge from a three-day hospitalization. It does not pay for custodial or intermediate care, and the majority of care provided in nursing homes is custodial, which includes assistance with dressing, eating and moving around.

After an individual has exhausted all of their assets, they may qualify for coverage under Medicaid. However, with Medicaid, an individual and their family members lose choice over the care received.

“A long-term care insurance policy can save you from having to deplete your assets to provide for care. “In some sense it’s lifestyle preservation to ensure you have a choice in your care. At the same time, it’s asset preservation – allowing you to pass something to your heirs.”

But the interesting thing to me–and I call it the second half of retirement problem–is the question of thinking about the period of frailty, generally post age 80, sometimes post age 85, sometimes post age 75, where you’re actually alive and well but need additional support in the form of long-term care–and that includes home nursing care (incidental or around the clock), assisted living, or true long-term nursing care.

And those liabilities sort of come on you suddenly. It’s not like you sit down and think, “In five years, I’ll the long-term care.” It could be the next day; it could be 10 years. And they require suddenly large drawdowns from your portfolio.

Until recently, consumers had few choices when it came to long term care insurance. Traditional policies, which provided a certain amount of selected coverage, were the norm. Policies could be designed to cover care expenses for a few months, or much longer, even providing benefits for the insured’s lifetime.

For example, consumers could purchase coverage that would provide $100 a day in benefits for a period of three years. When calculated, the $100 daily benefit multiplied by 365 days in a year for 3 years would create a $109,500 “pool of money” available for care.

This pool of money would pay for care in a nursing home, assisted living facility, adult day care, or in the personal residence of the policyholder once certain criteria had been met.

When the pool of money was depleted, the traditional policy would provide no more benefits. However, if the policy was never used, the owner would lose the investment of his or her premium payments. Thus, some seniors opted not to purchase these policies, deciding instead to rely on their families or current savings in the event that care became necessary.

With the cost of health care rising rapidly, and a single day in a nursing home costing $175 or more in major cities, self insuring is a risky proposition. Relying on family is an alternative, but not necessarily a viable one. Unfortunately, most families do not have the time, resources or ability to provide around the clock care to a loved one.

The average cost for a private room in a nursing home is more than $87,000 per year, according to the 2014 Cost of Care Survey produced by Genworth, a financial-services company.

And the average cost of an assisted living facility, which provides a level of care that is not as extensive as that offered by a nursing home, is $42,000 per year, according to the same Genworth study. All long-term care costs have risen steadily over the past several years, with no indication that they will level off.

Many people, when they think about long-term care at all, believe that Medicare will pay these costs — but that’s just not the case. Typically, Medicare only covers a small percentage of long-term care expenses, which means you will have to take responsibility.

Of course, if you are fortunate, you may go through life without ever needing to enter a nursing home or an assisted living facility, or even needing help from a home health-care aide. But given the costs involved, can you afford to jeopardize your financial independence — or, even worse, impose a potential burden on your grown children?

To prevent these events, you will need to create a strategy to pay for long-term care expenses — even if you never incur them. Basically, you have two options: You could self-insure or you could “transfer the risk” to an insurer.

In response to customer demands, insurance companies have designed what can be best described as hybrid or linked policies. These policies combine the benefits of an annuity or life insurance agreement with a traditional long term care contract. With hybrid policies, the consumer has the guarantee of long term care benefits or, if no care is needed, the promise of insurance benefits to themselves and their beneficiaries.

The Long Term Care Annuity –The newest addition to the hybrid marketplace is the long term care annuity. This product also functions exactly like a fixed annuity, but has a long term care multiplier built into the policy.

There is no premium rider attached to this medically underwritten annuity policy. Instead, a portion of the internal return in the contract is used to pay for the long term care benefit. Long term care coverage is calculated based on the amount of coverage selected when the policy is purchased.

The insurance company offers a payout of 200% or 300% of the aggregate policy value over two or three years after the annuity account value is depleted. For example, a policyholder with a $100,000 annuity who had selected and aggregate benefit limit of 300% and a two year benefit factor would have an additional $200,000 available for long term care expenses after the initial $100,000 policy value was depleted.

The policy owner would spend down the $100,000 annuity value over a two year period and then receive the additional $200,000 over a four year period or longer. In this example the contract pays $50,000 a year for a minimum of six years, but care will last longer if less benefit is needed. Again, if long term care is never needed the annuity value would be paid out lump sum to any named beneficiary.

These innovative products can meet consumer demands and provide more guarantees by combining traditional long term care insurance with the advantages of life insurance or annuity policies. Thus, consumers who utilize hybrid policies can avoid self-insuring against catastrophic long term care related expenses and have the peace of mind associated with a comprehensive plan.

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Monday, November 17th, 2014 Wealth Preservation Comments Off on Don’t Jeopardize Your Financial Independence

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