September 17, 2024 Weekly Update

We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Long Term Care Insurance Options in Retirement

Radon and Murs discuss long-term care planning and the complexities involved in making decisions regarding long-term care insurance. They outline why it’s crucial to think about your future care options and why understanding the different types of policies available today is more important than ever.

 

Long Term Care Insurance Options in Retirement

This blog will guide you through understanding basic long-term care options, outline the importance of long-term care planning, and offer you insights to consider when deciding if long-term care insurance is a good option for you. As the aging population grows, the financial burden of long-term care will only continue to increase, making this type of planning more essential than ever.

Long-Term Care: Planning and Options

Long-term care is one of those essential topics that no one really wants to think about, yet it’s crucial for anyone planning for a secure future. If you’re nearing or in retirement, you’ve likely considered what happens if you need care down the road. Unfortunately, most people avoid long-term care planning because of its complexities and the difficulty of accepting the reality that they may one day need assistance with daily living. However, skipping this critical step can lead to unexpected financial strain that can eat away at your retirement savings, leaving you or your loved ones vulnerable.

This blog will guide you through understanding basic long-term care options, outline the importance of long-term care planning, and offer you insights to consider when deciding if long-term care insurance is a good option for you. As the aging population grows, the financial burden of long-term care will only continue to increase, making this type of planning more essential than ever.

The Evolution of Long-Term Care Insurance

Over the last few decades, long-term care insurance has gone through numerous changes. Many people who initially purchased traditional long-term care insurance are now reconsidering its value. Traditional policies required you to pay premiums for years with the promise that, should you need care, the insurance would kick in and cover a portion of your expenses. But here’s the issue: no one foresaw the significant rise in healthcare costs or the fact that people are living longer than ever before.

Insurance companies offering traditional long-term care policies were caught off-guard by the rising costs. As a result, policyholders saw their premiums skyrocket, making it increasingly difficult to maintain coverage. Some policies have seen annual premiums rise from $500 to $2,000 or more for the same benefit, forcing many to drop their coverage. In many cases, if you don’t use the insurance, you lose all the money you’ve paid into it.

The Shift to Hybrid Long-Term Care Options

Due to the challenges faced by traditional long-term care insurance, the market has seen a shift toward hybrid policies. These alternatives provide a blend of insurance and investment products to offer more flexibility and value. Hybrid policies include a long-term care benefit coupled with either a life insurance policy or an annuity. Unlike traditional long-term care insurance, if you don’t end up needing long-term care, the money you’ve invested in the policy isn’t lost. Instead, your beneficiaries can receive a death benefit or you can access some of the cash value.

This shift has made hybrid policies more appealing to individuals seeking a more comprehensive financial planning strategy. It’s important to understand the options available within these hybrid policies to determine which one suits your financial goals and long-term care planning needs.

Hybrid Insurance Policy: Life Insurance with Long-Term Care Benefits

Hybrid life insurance policies are one of the more attractive options for those looking to combine life insurance with long-term care benefits. Here’s how it works: you purchase a life insurance policy that allows you to access the death benefit early if you need long-term care. If you never need long-term care, your beneficiaries will receive the full death benefit, making it a win-win.

For example, let’s say you purchase a policy for $100,000. If you need long-term care, you can use the value of that policy to cover costs, tax-free. If you don’t need the long-term care, your family will receive the full death benefit upon your passing. The hybrid approach ensures you don’t feel like you’re wasting your money on premiums for a service you may never use. In addition, hybrid life insurance policies often build cash value, which means you can access funds if you need liquidity during your lifetime.

This type of insurance tends to work best for individuals between the ages of 50 and 70, in relatively good health. It offers peace of mind because, no matter what happens, your money is being put to good use—either for care in your later years or as an inheritance for your loved ones.

Hybrid Annuity Policy: Annuities with Long-Term Care Benefits

Another hybrid option gaining popularity is the annuity with long-term care benefits. An annuity is a financial product that guarantees a stream of income for life or for a set period. When combined with long-term care benefits, these annuities offer a multiplier effect, where your income can increase if you need to pay for care.

There are two main types of long-term care annuities. The first is an annuity with a long-term care multiplier, which allows your annuity income to grow to cover additional care expenses. For example, if your annuity income is $10,000 annually, a multiplier may increase that amount by 1.5 or 2 times for a period of time if you need long-term care.

The second type is a true long-term care annuity, which requires underwriting—an evaluation of your health and risk factors before approval. This type of annuity offers significant tax benefits when you use the funds for care, making it a compelling choice for those concerned about the tax implications of their retirement plans. If you use the annuity funds to cover costs associated with activities of daily living, the withdrawals are typically tax-free, which can provide a tremendous planning advantage.

Pros and Cons of Long-Term Care Insurance

When evaluating your long-term care insurance options, there are pros and cons to each type of policy. Let’s break it down:

Traditional Long-Term Care Insurance

Pros:

  • Provides a dedicated pool of money for care
  • Offers specific coverage for long-term care needs

Cons:

  • Rising premiums make it hard to maintain
  • If you don’t need care, you lose the money you’ve invested

Hybrid Life Insurance Policies

Pros:

  • Provides a death benefit if care isn’t needed
  • Can build cash value over time
  • Allows you to access the policy’s value, tax-free, for long-term care

Cons:

  • Higher upfront cost compared to traditional insurance
  • Requires relatively good health for underwriting

Hybrid Annuities with Long-Term Care Benefits

Pros:

  • Offers lifetime income and the potential for long-term care coverage
  • May provide tax-free withdrawals when used for care
  • No underwriting required for some policies

Cons:

  • Typically has fewer benefits than a life insurance policy
  • Can be more complex to understand

Creating a Long-Term Care Planning Checklist

It’s essential to create a long-term care planning checklist to evaluate your needs and make informed decisions. Here are some key points to consider when planning for long-term care:

  • Evaluate Your Financial Situation: Can you self-insure, or will you need a long-term care insurance policy?
  • Understand Your Care Preferences: Do you want to receive care at home, in an assisted living facility, or a nursing home?
  • Explore Insurance Options: Research both traditional and hybrid long-term care insurance options to determine which is best for you.
  • Consider the Costs: Long-term care costs vary significantly depending on the level and location of care. Ensure you have a realistic estimate of potential expenses.
  • Review Tax Implications: Certain policies and annuities offer tax benefits when used for care. Make sure to consider the tax impact on your overall retirement plan.
  • Discuss Your Plans with Family: It’s important to involve your family in your long-term care planning to ensure your wishes are understood and that they are prepared for any financial or caregiving responsibilities.

Is Long-Term Care Insurance Worth It?

The answer to this question depends entirely on your financial situation, health, and goals. If you can self-insure and feel comfortable shouldering the risk, you may choose to forgo insurance. For many people, long-term care insurance provides peace of mind by transferring some of the financial burden to an insurance company.

Hybrid options have made long-term care insurance more appealing because they offer flexibility and ensure your money isn’t lost if you don’t need care. By evaluating your needs and understanding the various products available, you can make an informed decision about the best way to protect your financial future.

Conclusion

You may have a few questions from this blog. Our complimentary 15-minute call is a good option for you to get started on some answers. Schedule your complimentary call with us and learn more about Long-Term Care: Planning and Options.

August 21, 2023 Weekly Update

We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for August 21, 2023

This Week’s Podcast – Long-Term Care Planning Options

Listen in to learn how long-term insurance has evolved from standalone to asset-based long-term care insurance policies and the benefits of these changes. You will also learn about the right age to start planning for long-term care and the average cost of different long-term options.

 

This Week’s Blog – Long-Term Care Planning Options

No one likes to talk about long term care planning. Your plan will be expensive, and who really wants to think about needing long term care? Unfortunately, as we age, our health will likely decline, and there’s a possibility that we won’t be able to remain as independent as we are right now.

Long Term Care Planning Options

No one likes to talk about long term care planning. Your plan will be expensive, and who really wants to think about needing long term care? Unfortunately, as we age, our health will likely decline, and there’s a possibility that we won’t be able to remain as independent as we are right now.

In our most recent podcast, we brought on Jessica Iverson, a partner with us specializing in long term care planning and the options available to us.

Current World View of Long Term Care Planning and Insurance

Long term care evolves and changes over time. In the past, a lot of people didn’t consider this type of care during their retirement planning. However, people are living longer, and things are changing.

Long term care insurance has evolved. Past policies were standalone and didn’t have life insurance or annuities built into it. Policies today are not standalone products but asset-based and focus on long term care with life insurance or annuities built in.

If you never need long term care, your beneficiaries still receive something from the money that you put into your plan. Previously, if a person didn’t use their standalone plan, their families never received any of the funds back.

The plans of today are certainly more beneficial than in the past.

Appropriate Age and Time to Begin Thinking About Long Term Care Planning

When you work towards trying to secure your retirement, you’re often younger and not thinking about future health issues. However, there isn’t an opportune time to plan for future healthcare needs.

Jessica states:

  • It’s never too early to start planning, whether you purchase an index universal life policy with a long term care rider or chronic illness rider
  • As you get older, you can reposition an asset and look at an asset-based annuity

Jessica prefers an asset-based life insurance policy that has life insurance on the policy with a death benefit to beneficiaries. You can also pay these policies over a longer period of time to make them more affordable and can add an inflation rider on them, too.

An inflation rider guarantees that your long term care benefit will grow annually as inflation rises and costs for care rise along with it.

Understanding the Costs of Care and Why Insurance is Crucial for Most Retirees

Many people underestimate the cost of care as they age. Even looking back 10 years, costs have risen greatly. You have quite a few options and in 2023, these are the general costs that you’ll be faced with:

  • $4,000 – $6,000 per month for an assisted living facility
  • $9,000 – $12,000 per month for private room nursing care
  • $3,000 – $5,000 per month for a home healthcare policy

These figures are ever-increasing.

Home healthcare allows you to stay in your home for as long as possible, and it’s the preferred choice for many if their health allows them.

Do you need insurance?

We help people through this question by asking:

  1. Do you have enough assets to cover these costs, or are you comfortable with self-insuring?
  2. Do you need to transfer some of this risk?

Our retirement-focused financial plan does focus on long term care needs and helps us look through the scenario of today’s care costs to the costs at age 80. We provide a clear picture of what you may be spending for 3 – 5 years of care, how much assets are left and if there will be funds left for your spouse.

How Long Term Care Works and Your Options

Standalone policies are becoming increasingly difficult to secure, but they are available. These policies are hard to be approved for because they’re the most likely to be used by the individual.

Asset-based long term care has quite a few options and is really where the market has turned to in recent years. This works by:

  • Purchasing insurance on top of an asset (let’s say, life insurance)
  • When a claim begins, you would spend down your life insurance first and then receive a pool of long term care benefits, too
  • If you deplete the life insurance, you still have benefits through long term care that will cover your costs

There are also asset-based annuities, which work similarly to the policy built on a life insurance asset. An asset-based annuity option is more flexible and accepts a variety of premiums, such as qualified funds or transferring an asset from one annuity to another.

With this type of policy, the annuity is spent before receiving the additional long term care benefits in your plan.

You also have the option to secure a plan that offers:

  • Life insurance with a long term care or chronic illness rider
  • Income annuity with a doubler

If you have failing health already, it will make it far more challenging to secure a plan.

Difference Between an Asset-based Life Insurance Policy vs Life Insurance Policy with a Rider

The asset-based policy’s main purpose is long term care and allows you to:

  • Adjust the benefit period with up to 6 or 8 years of coverage
  • Add an inflation rider

You will receive a smaller death benefit with the asset-based policy. 

Life insurance policies focus primarily on life insurance and include:

  • Higher death benefit
  • Fewer long term care customizations

If you’re in your 20s and 30s, a life insurance policy will likely make more sense. However, the standalone asset-based policy maximizes your long term care benefits and has a lower life insurance payout.

Qualifying for a Policy

Every policy must go through underwriting, which is a complex process with a lot of moving parts. An insurer can deny your application for a policy, but we do know what these companies are focusing on.

  • Long term care focused products focus on the morbidity of the client. How likely is it that the client will get sick?
  • Life insurance focused policies are looking at your risk of mortality. How likely is it that the client will die from sickness?

Long term care policies look at the client’s Activities of Daily Living and if they can maintain:

  • Mobility
  • Feeding
  • Transferring
  • Dressing
  • Bathing
  • Toileting
  • Continence

With these policies, the carrier will not want to take the risk if you have a cane or walker or if you’re in any type of physical therapy. If you’re still able to maintain the points above and are in relatively good health, you will likely qualify for a long term care plan.

If you do have a few issues, there are some options available to you, such as:

  • Annuity options, which are more favorable and should include an income doubler. These plans only care about you not needing care right now and are easier to be approved for if you’re declined on a long term care plan.
  • Self-funding long term care is also possible.

Some annuities do accept qualified funds and you won’t need to worry about taxes upfront. An asset-based annuity will produce withdrawals over 5 or 10 years, which you will be taxed on for the duration of the annuity.

However, when the long term care benefits kick in, they are tax-free.

Navigating long term care is very complex when you go at it alone. Working with someone like Jessica Iverson or our team can help you understand all your options and find the best plan for you.

Do you have any questions about long term care planning? Feel free to reach out to us and schedule a free 15-minute call with us to discuss them.

June 12, 2023 Weekly Update

We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for June 12, 2023

This Week’s Podcast – What If You Need Long-Term Care in Retirement?

If you want to know and understand what long-term care may cost you in the future, you must first understand the actual cost of long-term care.

Listen in to learn about assisted living services for long-term care that involve more than a nursing home. You will also learn about long-term care insurance methods/plans, how they work, plus the pros and cons of each.

 

This Week’s Blog – What If You Need Long-Term Care?

One of the biggest topics today is the policies people took out in their 40s and 50s are having their prices increase. When signing up for policies, insurers do mention that the rates for premiums can rise, and it’s something that we’re seeing happen right now. Many of our clients receive a notice in the mail that their premiums are rising 50% or more, but there’s usually a list of ways to offset these costs by cutting benefits.

What If You Need Long Term Care?

Long term care (LTC) is a part of retirement planning, but it’s surely not as fun and exciting as planning vacations or taking up hobbies. Twenty years or so ago, Radon worked exclusively with long term care policies.

Back then, people often asked:

  • What if I need long term care?
  • How do I pay for it?
  • What are my options?

One of the biggest topics today is the policies people took out in their 40s and 50s are having their prices increase. When signing up for policies, insurers do mention that the rates for premiums can rise, and it’s something that we’re seeing happen right now.

Many of our clients receive a notice in the mail that their premiums are rising 50% or more, but there’s usually a list of ways to offset these costs by cutting benefits.

Unfortunately, people who receive these notices are already in retirement and it’s just too costly to switch plans. The older you get, the more you’ll pay for this type of insurance, and it leads to a person feeling almost forced to pay the higher rates.

We also have people come into our office who mention long term care and do not want to go the typical insurance route because premiums are always rising.

The goal of this article (you can listen to the podcast here) is to:

  • Outline your options
  • Explain how long-term care works
  • Things to think about when considering LTC

If you’re trying to secure your retirement, you need to have something in place for your future long term care needs.

What are the Risks and Numbers Surrounding LTC?

LTC is costly, and it’s something you need to consider in the same way that you do a mortgage or car loan. You need to learn the numbers and care options that you have available so that you can feel more comfortable with the idea of long-term care.

As of June 2023, we know that:

  • 69.6 million baby boomers are alive right now
  • Around 70% of Americans 65+ will need some LTC

Considering these figures, there’s a good chance that you or your spouse will be in an LTC situation during your lifetime.

We know that the cost of insurance is high, and this is because LTC is expensive.

How expensive?

  • In 2021, the private-room nursing home costs were $108,405 annually
  • In 20 years, the costs are expected to be $195,791 annually

If you’re fit and healthy now, it’s difficult to imagine that one day you may need to cover these costs either through insurance or out of pocket.

The average LTC stay is 3.5 years, so just think about having to pay $379,000 – $685,000 to cover your care. Some people are in long term care for memory care, and they don’t have any other medical issues, so they can be in a care situation for even longer.

What is Long Term Care?

Go back 20 years and there was nursing home insurance. Then, home health care started to pop up. Long term care itself is more than staying in a nursing home. My mom right now is in assisted living because she’s able to do much of her everyday routine on her own.

However, she needs assistance in some of her Activities of Daily Living, which is something that falls into one or more of six main categories:

  1. Bathing
  2. Dressing
  3. Continence
  4. Eating
  5. Toileting
  6. Transferring (getting in and out of bed, etc.)

Insurance policies start to kick in when you need assistance with at least two of the activities of daily living. A doctor will determine that these activities are difficult for you, and you can go into long term care.

However, if you have a little issue with bathing and dressing, you may want to go into what’s known as assisted living.

Assisted living allows you to have someone close to you to help you with your activities of daily living and then progress to greater care in the future if you need it. Assisted living also allows you to maintain your independence for as long as you can.

Even assisted living is quite expensive.

Costs for homemaker services (someone who helps with food and bathing), and a home health aide both have different costs. Annual costs for these are:

  • Homemaker Services Home: $59,488/annually at 44 hours a week
  • Home Health Aide: $61,776/annually for 5 days a week
  • Adult Day Health Care: $20,280 per year
  • Assisted Living Facility: $54,000 per year (private room with one bed)
  • Nursing Home Semi-Private Room: $94,900/annually
  • Nursing Home Private Room: $108,405/annually

These are hefty numbers, but the super high expenses come from the nursing home part of long term care.

If you’re freaking out, let’s discuss your options for LTC.

Long Term Care Options

LTC is expensive and a major concern when you’re trying to secure your retirement. You can opt to:

Self-insure

If you have the assets, you can self-insure, where you pay for these costs out of your own pocket. This may bring about some anxiety for you and there are pros and cons to consider:

  • Pros: You’re not transferring assets to an insurer and can avoid premium rate hikes.
  • Cons: You’re taking on the risk of not knowing what LTC will look like for you or how long you’ll need it. Can you afford to self-insure?

Self-insuring changes drastically, as you’ve seen from the 20-year projection. We help our clients visualize by using questions and scenarios where we determine how much the LTC will cost and how much will be left for your survivors.

Many people do not want to deplete their assets to the point that their survivors will struggle.

Medicare

Medicare does not provide what is known as “long term care insurance.” However, the first 20 days of a stay in a rehab facility are covered. For example, if you fall and need rehab, the first 20 days will fall into this category.

Day 21 – 100, the coverage will require an expensive copay.

After the 100-day mark, there is no coverage available.

Medicaid

Medicaid is a government program for low-income folks or people without assets. If you fall into this category, the pros are that you can get the care you need. Any money that you do make will go to the facility, but anything above what you make in “income” will be paid by Medicaid.

For example, if you receive Social Security, your check will go to the facility to cover as much of the bill as possible.

The total assets that you can have on Medicaid are very low.

Qualifications for Medicaid vary from state to state, and there’s not an easy way to get into the program. You can get assets out of your name to qualify, but you can’t just give everything to your kids or play the system in this way.

Traditional Long Term Care Insurance

Traditional LTC insurance is the one that most people are familiar with. You pay for insurance and if you don’t use it, you lose it. You pay an annual premium that is put towards a policy that will kick in if you need help with two or more activities of daily living.

Insurance will reimburse you daily based on the amount that you built your plan around.

Perhaps you receive $300 or $400 a day to cover costs. The plan may:

  • Increase based on inflation
  • Limit the length of coverage

If you transfer more risk to the insurer, you can be confident that you’ll pay more for your long-term care premiums.

LTC does take the risk out of the hands of the 70% of adults who will end up in this long-term care plan. You’ll pay for this insurance, and you may never need it, which is a concern. We’re also seeing annual increases in LTC, meaning that premiums will jump substantially.

Underwriting and qualifications are required to be approved for your insurance.

Much like your homeowner’s insurance, if you never use your long term care insurance, the money you put into it is never returned. This brings us to the next couple of categories and things to consider.

Asset-based LTC Insurance or a Life Insurance Policy Combined With LTC

One of our favorite options is the combination of life insurance and long term care insurance. 

Why?

It allows you to:

  • Take money from the policy if you need care
  • Leave the remaining balance as life insurance to the beneficiaries

Your premiums go into an account of sorts. You can use the money for your LTC, and your premiums do not disappear. Premiums are fixed and will not go up. You can pay in cash and fund the premium in one lump sum.

Some plans also allow a 10- or 15-year pay period to fund the account.

Underwriting is necessary to qualify for these plans, but with just a few questions, we can help you understand if you qualify for this type of insurance or not.

Riders

There are long term care riders you can attach to your life insurance.

When you add a rider, it adds an option to have LTC insurance and your premiums for the rider are fixed. The drawback of a rider is that premiums are not tax-deductible, and you’ll need to pay more on top of your life insurance premium for the rider.

Chronic Illness Rider

A chronic illness rider is very similar to a normal rider, but it’s for chronic illnesses. You can use your benefit payments for things limited to chronic illness, or a non-recoverable illness that you have.

Asset-based Long-term Care Through an Annuity

With this LTC option, you’ll attach the long term care benefit to an annuity that you have. This is a special annuity that can double or triple. For example, you put $100,000 into an annuity and it will add $200,000 or $300,000 for your care needs.

You have leverage and do not need to pay premiums because you fund it upfront.

If you want, you can even take money out of the annuity, although it will reduce the amount of money that you have for LTC if you ever need it.

We find that it is convenient for our clients who are above 68 years of age because there is baseline underwriting, but it’s not as strict. You also don’t need to worry about premiums rising, which is perfect for anyone who is in retirement and on a fixed income.

Income-based Annuities Asset Doubler

The final option for long term care on our list involves income-based annuities. A doubler kicks in when you can’t perform two of the six activities of daily living and will double your income for a certain number of years.

You don’t need to qualify for a doubler and it will provide you with additional cash flow for a certain period of time.

We do have a great resource available that breaks down everything we’ve just talked about and goes a bit further into the pros and cons of each option that we mentioned.

Please reach out to us if you would like us to send you this document.

Click here to request our document covering all of this information in greater detail or schedule a call with us if you want help going through your own long term care options.