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:
- Do you have enough assets to cover these costs, or are you comfortable with self-insuring?
- 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.
