Do you have a plan for long-term care? Chances are, many of us will lose our independence one day. An accident, illness, frailty or cognitive impairment can change the course of a life. Almost half of our current population age 85 or older need supervision due to a cognitive impairment. Some people will only need care for a few months, while others will need care for six to 10 years or more. You can’t predict what happens, but you can plan.
Creating a plan
Having a plan for long-term care is like having an advanced health-care directive. Consider the following to create a written plan and to initiate a conversation with your family:
Who do you want as home caregivers?
Family members and/or paid caregivers?
Who is your go-to person to carry out your desires, and have you had a conversation with that person about your desires?
What facilities do you prefer, if facility care is in your best interest?
How will care be paid for (social security, pension, investment income)?
What investments should be sold if your income doesn’t fully cover the cost of care?
Are you health-qualified (eligible) for long-term care insurance? If so, how much coverage is needed, and what premium will fit into your budget?
Long-term care (LTC) insurance pays benefits when you need help with daily activities, or due to cognitive impairment. The benefits paid are non-taxable. (However, your own funds used for home custodial care, or for assisted-living facilities are not tax deductible.) Some policies allow family members to be paid for caregiving. Typically, policies include home care coordination services, helping you to remain in your home. The younger and healthier you are when taking out a policy, the greater the benefits for the premium being charged. Keep in mind that health eligibility and rates are based upon your age, current health and health history. Once a policy is issued it is guaranteed renewable, regardless of any changes in your health.
Types of coverage
There are two types of long-term care coverage—traditional and hybrid. Most people with coverage have a traditional policy. If care is never needed, the money spent on premiums is gone, just like homeowner’s or auto insurance. (Note: Some companies offer a return of premium rider).
A hybrid policy is an annuity or a life insurance policy with LTC benefits, and they’re gaining in popularity as more people become aware of them. The amount of money the company owes for care is greater than the premium paid, known as the "leverage" factor. The younger and healthier you are when taking out the policy, the greater the leverage.
Hybrids provide the certainty of a return if care is never needed, and the policyholder typically has access to the premiums paid as a loan against the policy’s cash value.
Qualified funds (such as 401K or IRA) in the name of one spouse can be used to fund a policy for the care of either spouse. (This can be ideal when a couple’s net worth is mostly in qualified funds). Hybrids can be purchased with an existing annuity or life insurance policy on a tax-free exchange basis. The life insurance hybrid can be paid for all at once or over time. The annuity is purchased in one payment.
In addition, depending on the health of the person, they could be eligible for a continuation of benefits rider, which provides ongoing benefits after payments under the base life or annuity policy have been exhausted. With both the life and annuity hybrid, the continuation rider can be paid for over time or in a single payment.
Hybrids are underwritten based more upon the likelihood of longevity, rather than health conditions that may increase the likelihood care will be needed soon. Accordingly, it can be easier to qualify for a hybrid, depending upon one’s specific health issues.
(NOTE: Particular health histories can make it easier to qualify for an annuity hybrid rather than a life hybrid).
Final thoughts
Hoping you’ll never need care is a desire, not a plan. Take the time to become educated about your insurance options, have a family conversation and create a written plan. By doing so, you’ll be in a better position than having to react to a sudden, unforeseen situation.
Benefits for Business Owners
Companies that offer long-term care insurance provide a valuable benefit to employees that also benefits business owners.
Premiums are a deductible business expense, even with an LLC, an S Corp. or a sole proprietorship.
Management can cover a select group such as owners and key personnel. Coverage can be obtained to reward, retain and recruit specific employees.
Reward executives by providing coverage for those who are key to success of the business; spouses can also be included. The individual is the owner of the policy. Therefore, it is portable and is theirs to keep when they leave the company or retire.
Arthur Neibrief, CLTC, JD has specialized in long-term care planning since 1998. He has helped thousands of families, both as an agent and as a consultant to more than 100 financial advisors in the North Bay and San Francisco. You can reach him at art.neibrief@acsiapartners.com, or (707) 974-8282. For more information, go to www.artforltc.com. California insurance license #0C22076.
