Long Term Care


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Retirement Crisis Looming

Inability to plan, save and invest incomes has been identified as the major reason why working class people end up broke and financially down during and after their working life.  The future is unpredictable, so there’s no way to account for every possible scenario.  The country is facing a retirement crisis as its citizens live longer, which will result in greater demands on their assets. Yet many workers are failing to save enough — or anything at all — for their golden years.

However, Americans are living longer and we all want to age with dignity, independence and choice but that requires planning that few undertake.  Personal income management as one of the fundamental elements for a secure future.  The message is that when you fail to plan, you are planning to fail.

In 1950 the life expectancy was 68 and now it’s closer to 80, so that means that this whole generation of Baby Boomers is going to live in retirement 20 to 25 years, [compared with] the previous generation of 14 years.

With the shift to investment plans such as 401(k)s, that puts the onus on workers themselves to contribute money to their retirements.  Even when Americans do put away funds for retirement, they’re often making an investment misstep that could lower their long-term financial prospects.

The gap between the reality of Americans’ low participation in saving for retirement and their very real concerns about running out of money may reside in the economic realities facing many workers.

If you’re nearing retirement, make sure one of the most important and expensive aspects of your golden years—your future health-care needs—is not overlooked   Blowing through hundreds of thousands of dollars for medical expenses in retirement is a reality for many people.  People spend the most on health care during the last 10 years of their life.

Few boomers recognize that most who reach age 65 will need some form of long-term care. Government has no plan in place to deal with the needs of millions of aging boomers and few have set aside money to cover costs. In retirement, you may encounter expanding healthcare needs or even experience a life-changing disability. When trying to cover these health costs, you may realize that health insurance and Medicare fall short when it comes to providing ongoing, long-term care.

For instance, if you don’t need the care of a doctor, but need custodial care for daily living activities, such as bathing, dressing or eating, those costs are never reimbursed by traditional health insurance or government programs. People mistakenly associate long-term care with nursing home care, but most care actually takes place at home or in the community.  Either way, the costs are significant as is the toll on loved ones who typically are called on to provide care. Long-term care insurance can be an affordable option but many wait too long so it’s not available because they’re either too ill or it’s too expensive.

The biggest costs come from co-payments, deductibles and excluded benefits, along with out-of-pocket costs for prescription drugs and the cost of premiums for Medicare Part B (basic coverage) and Part D (prescription drug benefits).  Premiums for Medicare are based on income; the higher your income, the more you’ll pay. Beyond basic coverage, there also are other options that come with additional costs.

On top of all that are long-term care needs that arise from chronic illness, disabilities or other conditions that require daily assistance. Medicare doesn’t pay for continuing care in nursing homes, assisted living or home-based aides.  Medicare doesn’t pay for long-term care in a nursing home. The most it will pay for is 120 days. And that’s if you are improving the entire time you’re there. Improvement doesn’t always occur, so the period Medicare would pay for could be even shorter than that.

There is another program that will pay for a nursing home “Medicaid” and how do we qualify for that?  You have to have a medical condition that requires the medical attention provided in a long-term care facility. The income and resource amounts change from year to year. This year your monthly gross income can’t exceed $2,161, if you are the only one applying for Medicaid. If you and your spouse both apply, the income can be as much as $4,326.

And you must have a limited number of assets. What’s the limit on that? That depends on whether a person is singe or has a spouse who is not going into the nursing home and upon whether the assets are ‘countable resources.’ Some things, like your home, a car, a life insurance policy less than $1,500 cash value, a pre-paid burial policy and burial plots, aren’t ‘countable resources.’ If you were single, you would have to spend down any countable resources to $2,000.”

If married the difference is if one of you has to go into the nursing home, the other is considered the ‘community spouse.’ Congress decided some years ago the spouse who stays at home shouldn’t be impoverished just because a partner is in the nursing home.  So they put all yours and spouse’s countable resources in a pile, then they divided them in half. If Mom is the one staying at home, she gets to keep half of those assets up to $117,240. Also, since Mom’s income, even after allocating your income to her is still less than $2,931, some of your half of the assets can be invested to produce an income stream for Mom up to that amount.

It is recommended that you closely examining your options—especially because chances are that medical expenses will increase as you age. It’s [typically] the end of life when you have the really bad stuff that costs a lot of money.  This is where long-term-care insurance comes in. The cost is based on many factors, including your age when you purchase the policy and particular choices in coverage. Long-term care (LTC) insurance policies were created to pay for daily care expenses. They reimburse you for a pre-selected daily amount of care either in your home or in a nursing facility.

The cost of a LTC policy depends on several factors such as your age when you purchase the policy, the daily coverage amount, the number of years of coverage and any optional benefits you choose.  While having LTC insurance sounds like the perfect solution for getting the care you need, the reality is, there are challenges with these policies. One problem is getting the coverage to begin with. If you’re in poor health or are already receiving long-term care services, you can be turned down. Unlike regular health insurance, which can’t be denied to those with pre-existing health conditions, most LTC policies require medical underwriting.

Another problem is the availability of long-term care insurance. Due to an environment of rising health care costs, increased longevity and low interest rates, in the past five years, 10 of the top 20 providers (such as MetLife and Prudential) have gotten out of the LTC insurance business.  For providers offering LTC insurance, it’s possible they’ll be forced to raise premiums to remain profitable.  If LTC premiums go up, one way to manage the cost is to reduce your coverage. For instance, you could shorten the benefit period from five to three years or reduce the daily benefit amount from $100 to $75.

In the worst case, if LTC premiums become unaffordable, you might have to abandon the policy altogether without getting any benefit from it. Unfortunately, no other type of insurance can completely replace it; however, there are other options. To protect yourself or a loved-one from the rising costs of long-term care, consider these alternatives to regular LTC insurance:

Fixed Indexed Annuity (FIA) – is a financial product sold by an insurance company. The insurer guarantees to protect your principal and give you the potential for growth linked to an index, such as the S&P 500.

An FIA offers the opportunity for growth through a steady, guaranteed lifetime income stream, all while protecting your principal from the uncertainty of market volatility. You don’t actually invest your money in the stock market, but you can receive some of the upside potential of growth without putting your money at risk.

In addition to receiving guaranteed income for retirement, many FIAs offer annuity riders that provide additional financial security to pay for unexpected health care expenses, such as long-term care.

For instance, a nursing home rider may allow you to increase the monthly income on an annuity or to withdraw from your account to pay for care in your home or at a nursing facility. Another option is a terminal illness rider, which allows you to access a portion of your account value if you’re diagnosed with a terminal illness.

Having coverage through LTC insurance or a fixed annuity with optional riders gives you peace of mind for future health costs. If you carefully consider all your options and plan now for future long-term care expenses, you’ll be prepared to cover the care you need when you need it.

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Friday, October 31st, 2014 Wealth Management Comments Off on Retirement Crisis Looming

Long Term Care Awareness Month

November is Long Term Care Awareness Month… a continuing effort to raise public awareness regarding the importance of long term care planning. Consider this: 3 out of every 4 people who live past age 65 will need some sort of long-term care support, according to the US Department of Health and Human Services.  A stroke, a broken hip, Parkinson’s, simple frailty from aging – these are just a few examples.

The single biggest health issue requiring long-term care is that of Alzheimer’s and/or dementia. More than 50% of all long-term care insurance claims are related to a cognitive issue such as these. The Alzheimer’s Association 2014 Facts and Figures reports:

  • Alzheimer’s disease is the 6th leading cause of death in the United States
  • The disease kills more people than breast and prostate cancer combined
  • More than 5 million Americans are currently living with Alzheimer’s
  • 1 in 3 seniors dies with Alzheimer’s or another dementia
  • Almost 2/3 of Americans with Alzheimer’s disease are women
  • Women age 60 and older have a 1 in 6 chance of getting Alzheimer’s, men: 1 in 11
  • Women in their 60s are about 2 times more likely to develop Alzheimer’s than breast cancer at some point in their remaining years
  • More than 60% of Alzheimer’s and dementia caregivers are women
  • The average Alzheimer’s patient requires 24-hour care for an average of 4-7 years

Long term care includes a range of services to assist you when you suffer from a chronic or prolonged illness or disability (Alzheimer’s, Parkinson’s, stroke, cancer, accidents and much more) that leaves you unable to care for yourself for an extended period of time.

It is not just medical care, but is considered custodial care – care that is generally needed when you are unable to perform certain ‘Activities of Daily Living’ – bathing, eating, walking, getting dressed, etc. Services may be provided in nursing homes, assisted living facilities or a patient’s own home.

Long-term care is poised to become an important issue in the U.S. as the nation’s population grows older.  Each and every day, over the next two decades, 10,000 Americans will celebrate their 65th birthdays and as many as 70 percent of them, at one point as they grow older, will need some level of assistance with every day necessary chores.

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.

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.  If the policy was never used, the owner would lose the investment of his or her premium payments.

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

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 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.

A Long-Term Care rider provides long term care insurance in addiction to a steady stream of income. The 2006 Pension Protection act now allows for withdrawals from an annuity or life insurance policy with a long term care rider to be tax free to the individual for qualified long term care expenses.

  • Please Note – Applies to non-qualified money – Your money is used first.

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.

Long term care planning for you and your family is an important strategy for protecting your financial future. Regardless of whether or not insurance is utilized, the out-of-pocket costs for care can be a heavy financial burden.

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Tuesday, October 28th, 2014 Wealth Management Comments Off on Long Term Care Awareness Month

Red Zone Multitasking – Long Term Care Annuities

It is not unheard of – or even uncommon – for long term care insurance policyholders to receive a letter that tells them that when they renew their coverage for the next year, they will face increases in premiums that will be higher than 50 percent. This, regardless of claims history, heath status, or even age.

One of the things that can discourage people from buying long-term-care insurance is the idea of paying a lot of money for a policy that with any luck they’ll never have to use.  One way to avoid spending a lot of money directly on a long-term-care policy while still getting its benefits is to buy an insurance policy with a long-term-care rider.

Baby Boomers like the “red zone multitasking” nature of these hybrid policies, as they offer an annuity in addition to a long-term care component. That means that the premiums wouldn’t go to waste if the purchaser doesn’t end up needing long-term care.

Long-term care insurance is designed to protect your assets and provide coverage in the event that you require care at home or in a facility prior to leaving this world. The care could be custodial in nature or skilled care. The average stay in a nursing home in this geographic area is over $300 a day. That equates to over $109,000 a year. These are significant numbers.

Health insurance is designed to cover medical expenses, whereas long-term care insurance covers help with daily activities like washing, dressing, and bathing. Medicare doesn’t pay for any custodial care, whether rendered in the home or a facility. Medicare will cover very limited nursing home stays when skilled nursing care is required. So if you don’t have long-term care insurance, you’ll need to pay for such costs out of pocket, unless you have very little income and can qualify for Medicaid, the federal-state health program for low-income people.

Long-term care annuities – Even though traditional long-term care coverage is still the best in my opinion, long-term care type annuities are offered in two versions, simplified and guaranteed issue. In a perfect world, they should only be used as supplemental coverage to traditional long-term care, but annuity long-term care coverage allows you to fully control the principal in case you never access the benefit.

Most policies have few restrictions on how you use the money. Once you meet the qualifications, usually the inability to manage two of the six activities of daily living (eating, bathing, dressing, toileting, transferring and maintaining continence, or cognitive impairment), how you spend your money is up to you. You can pay a neighbor or a family member to help out or use the tax-free payments to augment other money that you have available.

These hybrid policies work variously, but the type that has gotten the most attention is a long-term-care annuity. Beginning in 2010, the IRS will let those who hold one of these deferred annuities use the money to pay for long-term care free of federal taxes. Annuities allow money to grow tax-free, but the tax man has to be paid when the money is removed. These long-term-care annuities free holders from this obligation.

Most hybrid deferred annuities operate this way: Purchasers put money — $50,000 is about the minimum — into an annuity. These also can be funded with another annuity or a whole or universal life insurance policy that the owner no longer needs through what the IRS calls a 1035 exchange.

Purchasers then choose the amount of long-term care coverage they want, usually 200 percent or 300 percent of the face value of the annuity, and they decide if they want inflation coverage. They also have to decide how long they want the coverage to last, usually two to six years. Inflation coverage will affect the maximum duration of the plan.

The person who purchases a hybrid annuity/long-term care policy and does not touch the long-term care coverage will be able to tap the annuity for income throughout his or her long lifetime.  When long-term care coverage is needed, the value of the benefit is subtracted from the value of the annuity.

Another benefit, at least in theory, is that hybrid policyholders will be insulated from the premium hikes that purchasers of long-term care policies have confronted in recent years. The hybrid policies typically require an upfront lump-sum premium, whereas long-term care premiums are usually paid on an ongoing basis, often annually.

Hybrid policies may be appropriate in certain instances. One of the key situations would be if an individual would not otherwise qualify for a pure long-term care policy due to health factors; he or she may in fact be able to qualify for a hybrid policy, especially an annuity/long-term care hybrid. Some policies offer “simplified underwriting,” which means that no physical or medical records are required; rather, the applicant may have a telephone interview with a nurse about his or her health.

In addition to a long term care strategy there are the six documents you need for a solid red zone estate plan:

• Joint Ownership — Enables you to own property jointly with another person and upon the death of the joint tenant, the surviving joint tenant automatically becomes the owner of the property.

• Last Will and Testament – A legal document which expresses the wishes of a person concerning the disposition of their property after death and names the person who will manage the estate.

• Durable Power of Attorney – Grants authority to another individual to act on behalf of the person who executes the instrument and are commonly used for legal and financial purposes.

• Durable Health Care Power of Attorney- Grants authority to another individual to make health care decisions on your behalf should you be unable to make such decisions.

• Advance Care Directive – A set of written instructions in which a person specifies what actions should be taken for their health, if they are no longer able to make decisions due to illness or incapacity.

• Living Trust – Created during your lifetime. Assets are transferred to the trust while you are alive. Provides written instructions for the disbursement of the trust assets upon your death.

These documents can play a vital role in the major plays during the fourth quarter of your life. Understanding how they work now can make the difference between a last-minute victory or loss.”

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Wednesday, September 3rd, 2014 Wealth Management Comments Off on Red Zone Multitasking – Long Term Care Annuities

Wealth Preservation Strategy

The best reason for an income annuity is to provide a guaranteed income stream.  Along with some savings, it is meant to help cover yourself and your wife’s basic living expenses. People are living longer in retirement, and ever fewer of them have a pension. To reduce the risk of running out of money in old age, they need to find other sources of guaranteed income, such as annuities.

The strategy involves covering ongoing basic retirement needs with predictable income from Social Security and any pension.  If they aren’t enough, we advocate filling the gap with an income annuity. We specify a single premium immediate annuity (SPIA), which is typically paid for from savings. Once their core needs such as food and rent are met, retirees can spend or invest remaining savings as they see fit.

Outliving one’s retirement savings is what keeps retirees and near-retirees up at night, We believe that annuities are the best choice for safe retirement investments in uncertain times.  The vast majority of retirees require a portion of their accumulated savings be used to generate an income during retirement. As a result, they carve out a portion of their “pile of money” to be used specifically to generate income.

Fixed annuities have contract provisions that protect annuity holders from ever running out of income.  However, there are other benefits that are available when using annuities.  At a recently held education session on inflation-fighting strategies with seniors. Any guesses as to the one spending category that retirees consistently increase as they move through retirement? You guessed it: healthcare and long term care. .  It’s an age-old problem — how to pay for long-term care.

Every other expense categorically declines over time as a percentage of a retiree’s household income, but healthcare and long term care will categorically increase. That means that many seniors should invest some of their “surplus” savings in a strategy to fund long term care expenses.

Just consider these national averages from a 2010 government report: $205 per day or $6,235 per month for a semi-private room in a nursing home; $229 per day or $6,965 per month for a private room in a nursing home; $3,293 per month for care in an assisted living facility (for a one-bedroom unit); $21 per hour for a home health aide; $19 per hour for homemaker services; $67 per day for services in an adult day health care center.

One of the things that can discourage people from buying long-term-care insurance is the idea of paying a lot of money for a policy that with any luck they’ll never have to use. Of course, almost all insurance is like that. But long-term-care insurance is particularly expensive and frequently, its purchase comes at a time when people are facing retirement and looking for ways to cut back.

As traditional long-term care coverage continues to lose ground — due to escalating premiums, greater numbers of claims, lower returns and lower mortality rates — a new set of insurance products has been gaining ground.  People are gravitating toward these products because they provide a “use it or use it” approach, instead of the “use it or lose it” challenge of traditional long-term care policies.

Baby boomers want LTC-type coverage, but don’t want to pay premiums and never receive LTC benefits. The big advantage of the hybrid products is “they all provide “some type of protection, in the event of needing LTC care in the future. But if the LTC isn’t needed, their premiums are not being thrown away.”

Unlike most traditional long-term care policies, this new series of so-called “combo” products offers living benefits beyond a mere death benefit. These combination or hybrid products package long-term care coverage with a life insurance policy or annuity-like product, providing for critical, chronic or terminal illness along with a death benefit.

They pay the benefit when the insured needs it the most.  If you die prematurely, the death benefit is paid to your beneficiaries, and if you live too long it can be accelerated to offset the expense of chronic, critical or terminal illness.

Since long-term care insurance is too costly for most, not to mention the market is rather unstable, Medicaid is the primary payer. Medicaid funds the care of nearly 70 percent of nursing home residents and 34 percent of home health care. The high cost forces most low and middle class families to turn to Medicaid to pay for care.  The reliance on Medicaid and the unavailability of other financing options limit a family’s ability to make choices regarding care settings and services.

Hybrid Annuity LTC policies – One way to avoid spending a lot of money directly on a long-term-care policy while still getting its benefits is to buy an insurance policy with a long-term-care rider.

These hybrid policies work variously, but the type that has gotten the most attention is a long-term-care annuity. Beginning in 2010, the IRS will let those who hold one of these deferred annuities use the money to pay for long-term care free of federal taxes. Annuities allow money to grow tax-free, but the tax man has to be paid when the money is removed. These long-term-care annuities free holders from this obligation.

Most hybrid deferred annuities operate this way:- Purchasers put money — $50,000 is about the minimum — into an annuity. These also can be funded with another annuity or a whole or universal life insurance policy that the owner no longer needs through what the IRS calls a 1035 exchange.

Purchasers then choose the amount of long-term care coverage they want, usually 200 percent or 300 percent of the face value of the annuity, and they decide if they want inflation coverage. They also have to decide how long they want the coverage to last, usually two to six years. Inflation coverage will affect the maximum duration of the plan.

If this person never needs long-term care, then the annuity can be redeemed for its accumulated value when it matures at 20 years — or it can be left to accumulate further interest and the long-term care policy will remain enforce.

When this person dies, his heirs will inherit the greater of the accumulated annuity value, if there have been no withdrawals, or the single premium he paid initially less the amount of long-term care paid.

Most policies have few restrictions on how you use the money. Once you meet the qualifications, usually the inability to manage two of the six activities of daily living (eating, bathing, dressing, toileting, transferring and maintaining continence, or cognitive impairment), how you spend your money is up to you. You can pay a neighbor or a family member to help out or use the tax-free payments to augment other money that you have available.

These policies generally don’t qualify for partnership plans that protect you from having to spend all your money before you qualify for Medicaid. If you have a lingering illness, having partnership insurance that protects some of your assets could be important.

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Saturday, June 28th, 2014 Wealth Preservation Comments Off on Wealth Preservation Strategy

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