Covering the Cost of Long Term Care

 April 2016

Covering the Cost of Long Term Care

By Nan Hayes for Caring Transitions®

As we mentioned in our March newsletter, paying for long term care is one of the major obstacles for many older adults and their families.  Just as there are several kinds of long term care options, there are several ways to pay for them.

Long Term Care Insurance

The numbers suggest that only 7% of the senior population carries long term care insurance. Long-term care insurance policies reimburse policyholders a daily amount for the services necessary to support their activities of daily living; feeding, bathing, walking and grooming. Policy holders can choose from a variety of care options and benefits in order to receive services they believe they will need. The cost of a policy will depend on several components, such as your age at the time of purchase, the total number of years you will receive coverage, the number of days per year you will receive coverage and the amount of coverage per day. Each company offers a variety of coverage amounts and care options, all of which impact the total cost.

Individuals who are already in poor health often do not qualify for coverage, may only qualify for limited coverage, or have to pay higher rates.  For this reason, it is important to plan ahead. In the last few years, many companies have moved to gender specific rates. Women now pay approximately 50% more than men because women tend to generate more long-term care claims than men, and their claims tend to be more expensive. Married women may be able to save by purchasing with a spouse and working women may benefit from employer programs.

One way to find out which insurance companies offer long-term care coverage in your state is to contact your state’s Department of Insurance.

Life Insurance

Life insurance policies can also be used to pay for care.  There are several options including Life Settlements, Combination Products and Accelerated Death Benefits. 

In a Life Settlement, you would sell your life insurance policy for its present value to raise cash for any reason, including paying for long term care services. Policy holders do not have to be in good health to sell their policy, but need to be aware that proceeds of the sale may be taxed. This option usually has age restrictions of 70 and over for men and 74 and over for women.

A Combination product is usually offered by life insurance with long-term care insurance.  The amount of the long-term care benefit is usually a percentage of the life insurance benefit.

An Accelerated Death Benefit (ABD) feature may be included in some life insurance policies, though typically requires an extra premium.  The ADB allows you to receive a tax-free advance on your life insurance death benefit while you are still alive. There are different types of ADBs, each of which provides a cash advance for a variety of reasons,  such as if you are terminally ill, have a life-threatening diagnosis or are permanently confined to a nursing home. 

If you receive payments from an ADB policy while you are alive, the amount you receive is deducted from the amount of death benefit that would be paid to your beneficiaries. 

In all cases above, it is recommended you get price quotes from several insurers and consult with professionals before making decisions. 

Private Pay

If you have enough savings, you will pay for your long term care on your own.  There several ways you can leverage your income, savings and home equity.

A reverse mortgage is a home equity loan that allows you to receive cash against the value of your home without selling it. With a reverse mortgage, you can receive monthly payments or a lump sum payment. You do not lose the title to your home and may continue to live in it.  The amount of the loan becomes due when the he borrower (or spouse) dies or sells the home. If you heirs wish to keep the home, they may choose to repay the loan outright.

Establishing an annuity through your insurance company may also help pay for long term care. Generally, in exchange for a single payment or a series of payments, the insurance company will send you an annuity, which is regular payments over a specified period of time. There are several kinds of annuities and they have an impact on your taxes, your heir’s, and also your Medicaid coverage, so it is best to consult with your tax professional in order to decide which type of plan is best for you.

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In our changing society, it has become increasingly important to plan ahead for post-retirement care and long term housing. As the nation’s most trusted relocation and liquidation resource, Caring Transitions® is here to support you with information and also with all the services you need to manage the home transitions that inevitably follow each of your long-term care transitions. Call us today for relocation, downsizing, decluttering, estate sale and online auction services!

©Caring Transitions 2016. No reprint in part or entirety without permission.