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Long Term Care Insurance – Protecting Your Nest Egg


Long term care is a topic few people know about and a topic even fewer people are prepared to deal with in the future. As the average life expectancy increases in the US, more and more people – from Baby Boomers to X and Y geners – are going to be confronted with the need for and planning for long term care.

According to the Medicare website, about 9 million men and women over age 65 will need LTC this year – that number expanding to 12 million by 2020. According to the Department of Health and Human Services, people who reach age 65 will have a 40% chance of entering a nursing home and 10% of those will stay there for more than 5 years. This, of course, can get expensive. This is where an LTC policy can make sense.

There are two types of LTC policies that a person may obtain: Tax Qualified and Non-Tax Qualified. Non-Tax Qualified policy coverage starts when a person is stated have a medical necessity by a doctor and corresponding insurance company representative. These “triggers” start the claim period and benefits.

Most individuals will purchase Tax Qualified policies. The premiums for these are deductible for income tax purposes (subject to the 7.5% floor) and the coverage goes into effect when a person is incapable of performing at least two out of six activities of daily living – or ADL’s. These ADL’s or policy “triggers” are bathing, eating, dressing, toileting, transferring from bed to chair and continence. Also, substantial cognitive impairment will also trigger a claim.

Although walking is considered an ADL for non-tax qualified policies, it IS NOT an ADL for a tax-qualified policy.

Benefits can range from custodial care, skilled nursing care, home care, hospice care and comprehensive care depending on the type of policy purchased. Premiums will be adjusted accordingly depending on the type, nature and scope of the coverage. Policies will also have different elimination periods (time deductibles) of 30, 60, 90 and 180 days. A longer elimination period will mean lower premiums, but will also mean more time to wait until benefits begin. Here is where an emergency fund can be very useful. 3-6 months of living expenses can help offset a long elimination period.

It should also be noted that Medicare DOES NOT cover custodial care – it is specifically excluded.

From a planning standpoint, not having LTC can quickly erode a lifetime of savings, investing and legacy planning. It can be a useful hedge to help keep a retirement portfolio in place, but can also (if not most importantly) keep undue stress off of a family that may feel obligated to care for a loved-one, if a LTC plan is not in place. It also goes without saying that it is impossible to get an LTC policy once cognitive impairment or an ADL has appeared.

Generally, the optimal time to consider LTC is after the age of 50. However, people may want to consider it earlier if they have a family history of mental illnesses (Alzheimer’s and or dementia) or if family members want to get together and “pool” the premium payments among siblings for their parents. This can assure less stress in the future by not having to feel obligated to take care of a loved one, and can also purchase the best care you’d like to see a loved-one have. It can also mitigate responsibilities of family members who live closer to aging relatives, while others live further away.

If you’re considering LTC, it’s important to ask your questions and do your due diligence. How much does the policy cost, what does it cover, what is the daily benefit, etc., are all excellent questions. You may also consider the financial stability of the company offering the policy and length of coverage as well. Don’t be afraid to ask questions. A competent LTC advisor will be happy to help answer your questions and do the best for your needs.

In the end, you can sleep a little better knowing that you’ve just hedged and protected your future, your legacy and your retirement, while lowering your stress.

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