Keystone Financial Group
David R. Guttery
RFC, RFS, CAM
Long Term Care Planning and Insurance is Critical
Needs of long term care can fall upon anyone, not just those nearing or transitioning into retirement. Some of these statistics may be surprising. In the State of Alabama, the average cost of a nursing home private room was $76,267 per year. The median yearly cost for all nursing homes in the United States was just over $80,000 per year in 2016.
Nearly 70% of people over the age of 65 will need long term care support services at some point in their lives according to the 2016 publication of Medicare and You. Medicare does not pay for long term care. In 2015, the national average length of a nursing home stay was 835 days. It’s easy to see that hundreds of thousands of dollars worth of expense could easily be incurred in just a few years.
Medicaid may be available to some Alabama residents, but qualifying for benefits may be difficult. Alabama is an income cap state, meaning in order to be eligible for long term care benefits, there is a hard income limit at the time of application. Generally, that limit is $2,250 of monthly income.
There is also a resources test, which is limited to $2,000 at the beginning of any given month. I strongly advise clients to consult with elder care attorneys for advice when it comes to the disposition of estate, and the creation of qualified income trusts and other tools that may be of benefit when it comes to planning for needs of long term care.
Having a long term care insurance policy can be of tremendous benefit when it comes to paying for these expenses, and there are a few ways to obtain such coverage. For most, the traditional long term care policy comes to mind, but there is another way to seek coverage for these expenses. Many companies offer hybrid life insurance policies that come with chronic illness riders. If the insured is unable to perform two of six activities of daily living, most of these riders will provide for the payment of half the death benefit of the policy, to the insured, over a 60 month period of time.
These policies build cash value, and can serve multiple purposes. In addition to being life insurance and providing a death benefit, they’re also a tax sheltered source of savings, and a source of indemnity against costs of long term care. Generally, these hybrid policies are easier to underwrite because they’re based on mortality assumptions. The underwriting of traditional long term care polices is based on assumptions of morbidity.
Lastly, the benefit under such hybrid life insurance policies is paid directly to the insured, regardless of the source of care. It could be a non medically qualified spouse or child that is actually providing the care at home, but the benefit is payable so long as the insured cannot perform two of six activities of daily living. For most traditional long term care policies, before benefits are payable, care must be received from a qualified medical source, which for many, means through an institution or at home through private duty nursing.
So, which type of coverage might be most beneficial for your situation? It depends. The traditional policies can be jointly underwritten, and to some extent, a portion of the premium may be deductible. The hybrid life policy may be easier to underwrite however, and benefits paid more easily. It depends on the needs and situation of the family. I would be happy to meet with anyone for whom this is of importance to help them explore the option that would make the most sense for them.