Real life strategies
December 9, 2013
by Brian Wolf

I often get asked about the cost of long-term care insurance. People want to know what the best strategies are to use for this concern in light of the ever-increasing costs associated with health care and long-term care.

According to www.cdc.gov, 7 out of 10 people will need some sort of long-term care in their lifetime. With the costs continuing to rise at rates that exceed inflation (www.longtermcare.gov), today’s 60-year-olds could see an annual cost of $181,000 by the time they are 80 (www.prudential.com).

What would an extended stay of two to three years in a nursing home do to your retirement assets?

Historically, some of the more popular strategies used to address long-term care expenses have been traditional long-term care insurance, Medicare/Medicaid, and personal savings. These strategies, which may be appropriate based on someone’s individual needs, also have limitations and/or potential drawbacks that should be considered.

Traditional long-term care insurance has seen increases in premiums over the last few years for both new and existing policies. Generally speaking, few long-term care policies contain guarantees that your premiums won’t increase down the road, which could make the policy unaffordable, cause the policy to lapse, and you to lose coverage. One drawback of long-term care insurance is the “use it or lose it” aspect. If you never need the benefits, you will not receive a refund of the premiums paid for this coverage (www.kiplinger.com).

Medicare and Medicaid can provide some protection, but both come with restrictions and limitations on the types of care they will cover and for how long. It is important to educate yourself on how these programs work. Complex retirement strategies involving qualifications for these programs may require the involvement of a qualified attorney and /or tax professional.

While the use of personal savings sounds like a good option, the risk of running out of funds due to an extended stay in a nursing home is still very real. Many people simply do not have an extra $450,000 to set aside for long-term care expenses.

Life insurance with a long-term care rider should be another option to consider when putting together a long-term retirement strategy. These rider benefits amounts will vary according to the rules and restrictions of the specific life insurance policy selected. In most cases, a licensed physician must deem the insured incapable of performing at least two out of four activities of daily living.

Long-term care riders are not available on all insurance products and may not be available in all states. Additionally a long-term care rider may require an additional premium or fee. This insurance product can provide you with access to the death benefits while you are alive to help offset the costs associated with a chronic illness, including a stay in a nursing home.

If the benefits are never needed, the life insurance death benefits generally pass to the beneficiary income tax free, therefore avoiding the “use it or lose it” scenario that is generally associated with traditional long-term care insurance.

The message that I want to leave you with is that you have options! Sometimes life insurance will make the most sense, and sometimes it won’t.

If you would like to discuss these options in person, just give us a call.

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