By Steven Hein
Hein Wealth & Tax Solutions LLC
The cost of a private nursing home in Florida averaged more than $108,770 in 2018. By 2048, that same cost is projected to grow to more than $264,000 a year. A few years in a nursing home and the costs of long-term care (LTC) can be quite alarming. With a 72 percent chance of a long-term care event, the question is: Why are people not purchasing more long-term care? Some people are under the misconception that either Medicaid, Medicare or health insurance covers long-term care but each of these options has severe limitations. Despite the tremendous need for long-term care, traditional long-term care sales have plummeted for three reasons:
- People think they will be lucky enough to not need it;
- Premium increases of 100 percent on some policies haves left people angry; and
- Limitations on submitting claims for care by licensed health care providers only, limits the options for care providers.
Fortunately, new options are available to provide for customized solutions that traditional long-term care does not provide
Life insurance/long-term care
Life insurance with a long-term care rider is growing in popularity because there is no scenario in which the insured or beneficiary will not benefit: People either die or utilize long-term care. Once a no-lapse policy is purchased and the premium is paid, there should be no future premium increases. Most of these policies are indemnity policies which means that once a person qualifies for long-term care, the benefit is a cash payment which can be paid to unlicensed caregivers including family members, utilized for home modifications, or utilized for other expenses or needs. These polices provide compelling income-tax free rates of return. They also help families by, for instance, enabling compensation to a particular family member who is providing most of the care. Further, long-term care policies can be offered in second to die policies and potentially in irrevocable life insurance trusts. Life insurance long-term care can also be utilized on the key caregiver spouse or for spouses in second marriages.
Annuities/long-term care
For people who are less concerned about providing a legacy but still want to provide for long-term care, annuity long-term care products are also increasing in popularity. These products usually provide for substantially more in long-term care than the cash that is put into the policy. A 60-year old female putting $100,000 into a long-term care annuity can accumulate a pool of over $780,000 of long-term care by age 85. This product typically allows owners the flexibility to: (a) cash in the product and get their money back or (b) die and leave the cash invested to their heirs. Some of these policies are also the indemnity polices described above with the flexibility to utilize the proceeds for many different uses. These annuities can either be paid for in a lump sum or be paid for over lifetime. An advantage of paying for the annuity/long-term care over a number of years is that a portion of the long-term care expenses can be paid from a health savings account. A health savings account enables you to receive a tax deduction for money contributed and the money grows tax-free to be used later for health care expenses, including long-term care premiums and some annuity/long-term care premiums.
With the cost of long-term care continuing to increase, planning should cover the probability of a long-term care event. With both the life insurance/long-term care and annuity/long-term care options, either you or your heirs will receive a benefit so there is no “use it or lose it” concern as with traditional long-term care. Once you qualify, the ability to receive cash that can be used as you see fit is a major advantage compared to a traditional reimbursement model. The reduced likelihood of a premium increase for life insurance long-term care and the inability to raise premiums in the long-term care annuity products are further advantages over traditional long-term care. Long-term care coverage in all forms helps with financial costs and additionally helps to ease caregiver strain and contribute to both quality of life and peace of mind.
Steven Hein C.P.A., J.D., M.B.A, LL.M., PFS, CFP® of Hein Wealth & Tax Solutions LLC® is an independent financial planner. He works with individuals, families and business owners to help them develop a strategic, long-term financial plan that helps them achieve their financial objectives. He helps clients fully understand all of their options.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Hein Wealth & Tax Solutions is not affiliated with Kestra IS or Kestra AS. Kestra IS nor Kestra AS and Hein Wealth & Tax Solutions LLC, are not Certified Public Accounting (CPA) firms. Registered Persons may be properly licensed as Certified Public Accountants (CPAs)to practice such activities outside of their capacity as Registered Persons. Kestra IS & Kestra AS do not provide tax or legal advice.
Note: Long-term care insurance benefits may be subject to limitations, waiting periods, and other restrictions. Guarantees and benefits provided by life insurance products are subject to the claims-paying ability of the issuing insurance company.