The cost of long-term care (LTC) insurance is the price of peace of mind. It’s that simple. The price may be too high for many to pay. But before making that decision, you need to understand some creative strategies for buying LTC insurance that may make it more affordable.
First, a review of the basics. Medicare and supplements do NOT cover custodial care – only a limited period of skilled nursing care after a hospital discharge. Beyond that, if you need help to do basic activities like showering, toileting, dressing and feeding yourself, the money will come out of your savings.
And once you drain your savings, you will be forced to use state Medicaid programs — likely not your choice for how you want to spend your last days. That is why you should at least consider long term care insurance.
Many who purchased these policies years ago have seen premiums rise exorbitantly. But if you’ve paid in for years, it’s better to adjust the coverage than drop it now. And for those who are first considering LTC insurance, there are new approaches that can lock in premiums and coverage for the future.
I’m especially concerned about women growing older alone, without family resources to provide care. So, I’ll direct these examples to their situation.
Combo LTC/life policies: One of the big drawbacks to traditional “annual premium” LTC insurance was the fact that if you died without using the coverage, the money was gone. Now these combo policies offer a life insurance benefit to your heirs, reduced by the amount of care you might use. And you never worry about rising premiums.
Combo policies are typically purchased with one-lump sum deposit — or with a fixed payment every year for 10 years.
For example, a 55-year-old woman could get a guaranteed six years of coverage (with a 3% compound inflation adjustment) giving $3,141/month in care coverage, rising to $7,623/month at age 85.
If she never uses the care, there would be a death benefit of $75,376, reduced by any care used, and a guaranteed minimum residual death benefit of at least $15,000.
The cost of this policy is a one-time deposit of $75,000 – or 10 equal payments of $8,600/year.
Paying for combo policies: There are some creative ways to come up with this chunk of money that gives you peace of mind.
-Use cash value from life insurance. If you have a cash value life policy, you can do a tax-free 1035 exchange of that cash into a new combo policy. You’ll still have some life insurance (probably less), but LTC coverage while you are alive!
-Penalty-free IRA withdrawals. Once you’re 59-1/2 you can take withdrawals from your IRA without penalty, though paying taxes. Yes, you wanted to save that money for your later years, but it can also be used to pay premiums now for care later, when you might really need it. At 55 you can pay the first four years of premiums out of pocket, then later use annual withdrawals to finish that 10-pay plan.
The ultimate cost of long-term care will also likely be a burden for married women, since men die younger. Caring for a spouse can quickly deplete family savings, leaving a surviving spouse with little but home equity and Social Security to cover their own care costs.
One solution: Many of these LTC combo policies offer “shared benefits” for spouses or partners — assuring that care for the first won’t wipe out all assets.
And, as a last resort, you might consider a “short-term” policy — far less expensive coverage for only one year of care. A 60-year-old woman would pay less than $1,500 per year for this policy — designed to cover shorter term needs, such as recovering from a knee or hip replacement.
One more important point: You need to purchase your policy from an experienced agent — one who can help provide the best alternatives and understand the details.
So, here are my two trusted LTC advisors. (And no need to use my name, as I get nothing out of this but the knowledge that you are in good hands!)
Brian Gordon at 800-533-6242 and Phyllis Shelton at 800-582-8425.
Please don’t procrastinate. At the very least, investigate. One day you may be glad you did. And that’s The Savage Truth.