One major risk we face in retirement is covering the cost of long term care whether it’s at home, assisted living or a nursing home.
An example is my wife’s parents, ages 85 and 90, who are in assisting living at NHC in Farragut. The cost for care is $5,000 a month plus my father in law (90) needs extra care 4 hours a day at $1,600 a month. How do we protect ourselves from these costs and to not be a burden to our families?
Traditional Long Term Care Insurance
While there is growing need for private insurance to cover long-term care needs, consumer confidence in traditional long-term care insurance is plummeting.
There are serious concerns within the industry regarding affordability, sustainability, and profitability of traditional LTC policies. The ability to design, price and underwrite stand-alone coverage so that is remains stable and cost-effective over time is being questioned. Carriers have been hurt by consistently low interest rates, consistently low persistency rates and higher than expected claims.
The results? Leading traditional carriers have raised premiums substantially on new policies. Many are hiking rates on existing policies. Many carriers have chosen to get out of the business altogether.
Customers are looking for a safe, sensible and cost effective alternative – one that is appealing to both the consumer and the insurer. Asset-based long term care plans meet those criteria. As a result, demand for these products is beginning to boom.
Asset Based Long Term Care Insurance
The Pension Protection Act (PPA), offers purchasers of asset-based LTC insurance plans exceptional tax advantages. These changes were both substantive and positive. The result is asset based LTC insurance built on the chassis of life insurance or an annuity. With these products in place, the life insurance death benefit or annuity value is accessed to pay for qualifying Long Term Care expenses, and the funds are available free of federal income tax. Asset based long term care strategies are coming to the forefront as the traditional pay-as-you-go plans are seeing a decline.
We recommend the asset-based long term care funding approach for many of our clients. The death benefit is paid to heirs if the policy or annuity is not exhausted for long- term care expenses. This assures you that benefits will be paid no matter what.
Generally, the life insurance and annuity selections are paid with a single premium – money you have typically set aside as a rainy day fund and not needed for retirement income. You may even use qualified funds such as an IRA.
Newer options include limited payment where the premium payments are spread over a set number of years but are guaranteed never to increase. You get a guaranteed amount of protection at a guaranteed price, whether you pay all at once or over time. Guarantees are based on the claims paying ability of the insurance company.
If you are planning to self-insure the expense of Long TermCare we should discuss whether asset-care is a viable solution for you.