Richard Chew – Financial Lifestyle Expert and Principal of 1st Capital Insurance Group
10 Crucial Things to Know about Long-Term Care
1) Your Biggest Financial Threat: The most significant threat to your financial nest egg is long-term care. 70% of people over age 65 will need some kind of long-term care during their life. The national average for home health care services is $16,743 per month. The good news is there are ways to manage this without buying a traditional long-term care insurance policy – the types where “you use it or lose it.”
2) What Your Long-Term Care Insurance Policy should and should not do! Long-term care insurance should be termed “lifestyle” insurance — it is NOT nursing home insurance! If your vision of your later years includes sitting at home in your own recliner, with your own remote control, watching your own TV, you should be planning for that future with long-term care insurance.
3) Reverse Mortgages- Good or Bad? Reverse mortgages (Home Equity Conversion Mortgages) have become one of the most popular and accepted ways of paying for many different expenses, including the cost of long-term care. Reverse mortgages are designed to keep seniors at home longer. A reverse mortgage can pay for in-home care, home repair, home modification, and any other need a senior may have.
4) When To Use Medicaid to Pay For Long-Term Care. Medicaid should be used as a last resort to pay for long-term care. However, in some cases, it may be the only option to protect family assets. Medicaid will pay for long-term care, but certain criteria must be met. It is important to seek the advice of a qualified financial professional and an elder law attorney prior to applying for Medicaid.
5) Important Considerations When Choosing a Long-Term Care Plan.
A. Ratings: The recommendation is to choose a company with an AM BEST rating of A+ or better.
B. Assets: The assets of the insurance company should be in the BILLIONS.
C. Discounts: Some long-term care insurers will allow for group discounts through employers, or “affinity” group discounts through a local organization.
D. Tax Considerations: There are some tax advantages regarding tax-qualified long-term care insurance plans.
At the federal level, premiums for long-term care insurance fall into the “medical expense” category. On the state level, 26 states offer some form of deduction or tax credit for long-term care insurance premiums. It is important to talk to a tax advisor or accountant for that information, as it changes every year.
6) Annuity-Based Long-Term Care & The Pension Protection Act. On August 17, 2006, the President signed into law The Pension Protection Act of 2006 (the “Act”). Individuals owning annuity contracts can now have long-term care riders with special tax advantages. The Act allows the cash value of annuity contracts to be used to pay premiums on long-term care contracts.
7) Asset-Based Long -Term Care Solutions. The ideal planning approach for individuals who choose to self-insure is to “invest” some of their legacy assets in such a way that the assets can be worth as much as possible whenever they may be needed to pay for care…in the home, assisted living facility, or nursing home. If not needed, the money would then pass to the intended heirs, with no “use it or lose it” issues as with conventional long-term care insurance.
8) Long-Term Care Strategy Using IRA Money. While most people use their IRA to supplement retirement, many times waiting until age 70 1/2, at which point the mandatory required minimum distribution rules apply, some people have chosen to take a portion of their IRA and fund an IRA-based annuity which then systematically funds a 20-pay life insurance plan with long-term care features. This type of IRA-based long-term care policy is unique in the sense that it starts out as an IRA annuity policy, also known as a tax-qualified annuity, and then over a twenty-year period makes equal distribution internally to the insurance carrier and funds the life insurance.
9) Important Documents for Long-Term Care Planning. One of the most important things to set in motion is the legal paperwork! A durable power of attorney for health care and financial power of attorney are essential, along with an advance directive or living will.
10) How To Use Veterans’ Benefits to Pay For Long-Term Care. The Veterans’ Administration offers a special pension with the Aid and Attendance (A&A) Benefit that is largely unknown. This most important benefit is overlooked by many families with veterans or surviving spouses who need additional monies to help care for ailing parents or loved ones. This is a “pension benefit” and is not dependent upon service-related injuries for compensation.