When it comes to financial planning, long-term care (“LTC”) is a life event that often doesn’t get the recognition it should, given its likelihood and substantial cost. So, in last month’s article, I examined three LTC funding methods:
Medicaid, a government program that assists low-income people. If you’re thinking about Medicaid as your LTC funding source, consider factors like (a) you may have to spend down your assets to qualify and (b) Medicaid's coverage is limited in several ways. Given its drawbacks, Medicaid is generally viewed as the last-resort option for LTC.
Self-Funding, where individuals use their own assets to cover LTC expenses. To determine if Self-Funding is right for you, consider factors like (a) you retain the risk of paying exorbitant LTC expenses and (b) you risk selling assets in a market downturn, creating long-term consequences for your retirement funds. Given its risks, Self-Funding is viewed as suitable only for wealthy individuals.
Traditional LTC Insurance, which pays a monthly, tax-free benefit for LTC expenses. This method has advantages over Self-Funding and Medicaid, most notably (a) it transfers financial risk to a private insurance carrier and (b) it covers a wide range of LTC services, from home health care to nursing home stays. Unfortunately, such products have two defects that make them unpopular:
First, insurance carriers periodically increase the premiums to account for changes in the projected cost of claims. Some policyholders can’t afford the unexpected rate increases, forcing them to reduce – or even cancel – their coverage.
Second, Traditional LTC Insurance has a “use it or lose it” structure, so policyholders may spend a lot on premiums… and never receive any benefits.
This month, I present a fourth funding method – one that incorporates the positives of Traditional LTC Insurance… and addresses its deficiencies.
Hybrid LTC Insurance combines Traditional LTC Insurance… with Life Insurance. It pays a monthly benefit for LTC expenses and a lump-sum benefit when the policyholder dies. Since the death benefit includes any unused LTC funds, Hybrid LTC Insurance solves the aforementioned “use it or lose it” problem. One way or another, your premiums will produce substantial benefits! Furthermore, since the premiums are locked when the policy is issued, this product removes the above concerns over unexpected rate increases!
Financial planning for LTC requires thorough consideration. The sooner you build (and execute) your strategy, the better you’ll be prepared. Before you speak with an LTC specialist, here’s a list of questions to help you decide which funding method is best for your needs and objectives:
How badly would you reduce your assets to pay for LTC?
Based on your family’s – and your own – health history, can you foresee a need for extended home health care?
Do you have sufficient earnings and retirement savings to afford the cost of LTC without insurance?
Would you be willing to deplete your estate to pay for LTC? Do you have other plans for the money you’ve saved?
For more information, my email address is insuritystreet@gmail.com. The consultation is free with no obligations.
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