Long-Term Care is not just about protecting one’s estate from the huge costs associated with a long-term illness or injury…it’s much more than that. A properly structured long-term care policy will
- Financially protect one’s assets from depletion.
- Provide a written plan of care in the event of a long-term disability or illness that expresses precisely one’s wishes and not those of one’s caregivers.
- Remove the stress of caring for an individual from a family so that they can provide love and support without the obligation to provide care.
The costs associated with Long-Term Care (LTC) are not covered by Medicare or any other type of health insurance other than a specialized LTC insurance policy. LTC facilities are available to individuals who are able to demonstrate they have no assets. However, for those families who are not indigent and do not qualify for one of these state-sponsored facilities, the financial and emotional impact on the family can be devastating.
LTC policies pay a benefit if the insured can no longer perform certain day-to-day functions or is cognitively impaired, as determined by their physician.
Typically, there are three options to acquire Long-Term Care (LTC) coverage:
- Traditional LTC Policy – With this option the insured pays a lifetime premium (which is usually waived if benefits are being paid). This policy does not require a lump-sum cash out of pocket, and premiums are paid annually. The disadvantages of the traditional LTC option are several:
- They are structured as “use it or lose it.” In other words, if benefits are never paid out (because the insured either dies before benefits are received or cancels the policy) there is no refund of premiums paid.
- They have a limited benefit period.
- In today’s market environment, premiums are not guaranteed and can be increased during the insured’s lifetime.
- Asset-based LTC Policy – With this option the insured transfers a lump-sum to the insurance carrier in exchange for a pool of LTC benefits (which, with some carriers, can still be extended to provide for lifetime benefits). While this policy type does require a lump-sum asset transfer to the carrier, the advantages are many:
- The pool is guaranteed with no possible premium increase during the insured’s lifetime.
- If the policy is cancelled or the insured dies before using the funds in the pool, there is a death benefit back to the estate—usually in excess of the lump-sum premium paid in.
- Life Insurance Policy with a LTC Rider – With this option, the insured buys a life insurance policy where the death benefit is either paid at the insured’s demise, or is paid out in monthly installments in the event of a LTC need. This option is becoming extremely popular, particularly among younger insureds who need the life insurance while they have younger families, and would like to protect themselves with LTC coverage at the same time. Additionally, these policies usually grow significant cash value (on a tax-preferred basis), which can be accessed for retirement or other need at any time. Premiums can be structured either over the life of the insured or any shorter period, including a single-premium payment.