You are healthy and happy. And you hope it stays that way for years to come. You are looking forward to retirement when you start checking items off on your bucket list.
Master the greens at your local golf course. Take the dream trip you have been planning. Spend more time with your family. While those plans are all great, you are probably not looking forward to needing health care, which is becoming more expensive every year.
There are long-term care insurance options you can consider. These options ensure your retirement nest egg you worked so hard to build is protected and to help relieve your future caregivers (often family members) from financial and emotional stress later on.
Start thinking about long-term care insurance options while you’re healthy.
It is essential to begin the process and make some crucial decisions before an unexpected health event suddenly changes your needs. The chances of needing health care down the road are likely.
Americans turning 65 have almost a 70 percent chance of needing some form of long-term care in their lives. About 8 percent of those between ages 40 and 50 have a disability that could require long-term care services.
Long-term health care can be expensive. The annual cost for a private, one-bedroom in an assisted living facility is $102,204. The hourly rate for an at-home health aide is $99.65.
Questions to ask your financial professional
We work with our clients to plan for their health care as they approach retirement. We suggest you speak with your financial professional as you prepare for the future. Here are five questions to consider as you make your retirement health-care plan.
1. What are my insurance options for Long-Term Care?
There are several kinds of long-term care (LTC) insurance policies, including traditional and hybrid options. Because Medicare does not pay for long-term care, it is essential to understand the pros and cons of each type so you can choose the policy that is best for you.
Traditional Long-Term Care
Traditional Long-Term Care is a policy designed to pay for future long-term care. Depending on how the policy is structured, this type of policy will typically provide the most robust benefits to cover long-term care costs. These policies stay in force as long as you pay the premiums.
Typically they are less expensive than the hybrid option initially; however, over time, the out-of-pocket costs can add up to a significant amount. Additionally, if you do not need long-term care, you will not receive any benefits from the policy. Many traditional long-term care policies offered today do not have guaranteed premiums or benefits, so premiums may increase over time.
Pros: Typically, the most robust benefits in the event of a long-term care event.
Cons: Increasing premiums, no benefits if there is not a long-term care event.
Hybrid Long-Term Care
Hybrid policies are a combination of life insurance or an annuity with long-term care insurance. This structure of policy will provide guaranteed premiums, and benefits will never decrease. Some policies will also offer a return of premium option if you decide to give up your policy. Most provide a tax-free death benefit and inflation protection options to help the long-term care benefits keep up with the rising cost of care.
Hybrid policies can have a variety of premium options. Due to shorter premium durations, hybrids are often more expensive in the short-term compared to traditional policies. Hybrid policies are becoming increasingly popular, with close to 405,000 policies sold in 2018.
Pros: Guaranteed premiums & benefits. Some policies may offer a return of premium, tax-free death benefit, and inflation protection options.
Cons: Hybrid policies are generally more expensive in the short-term compared to traditional long-term care insurance.
2. What does Long-Term Care insurance generally cover?
Long-term care insurance may cover expenses related to assisting chronically ill people with their personal care needs, such as bathing, dressing, and moving between beds or chairs. It can also involve helping people with everyday tasks, such as housework, managing money, preparing meals, shopping, and caring for pets.
Policies may also pay for home and community-based services, such as adult day care, caregiver training, home health options, and respite care. They generally cover facility-based services, like assisted living, hospice, and nursing home care.
3. How will I receive benefits?
Your benefits will typically begin when you are certified as chronically ill by a licensed health care practitioner and have satisfied the elimination period. The definition is being unable to perform at least two daily living activities due to a loss of function, or you need supervised protection due to severe cognitive impairment.
You can receive your benefits in two ways, either as a reimbursement for expenses incurred or through a set monthly benefit amount, often referred to as cash indemnity. With a reimbursement policy, you must first pay for qualifying expenses out-of-pocket and then submit a receipt to the carrier to be reimbursed. A cash indemnity policy automatically sends you a monthly cash benefit that you can use to cover any of your care expenses, such as informal care, medical equipment, prescriptions, and even housekeeping and home maintenance needs.
4. What happens if I buy a policy and don’t need long-term care?
Traditional long-term care insurance is generally “use it or lose it,” meaning you will not receive any benefits from the policy if you do not use it. Some policies do offer a return of premium option, but typically that is an expensive add-on.
Hybrid long-term care insurance will typically pay a death benefit if there was never a long-term care event. Most hybrid policies also offer a return of premium feature as a standard feature.
5. Are there tax benefits to long-term care insurance?
For traditional long-term care insurance, all or a portion of the premium may be tax-deductible. There are some IRS limitations and qualifications to that rule. Most hybrid plans do not offer tax-deductible premiums due to the structure of the policies.
Long-term care benefits can be taxable; however, the benefit payments are not taxable if:
- The benefit is equal to the actual expenses incurred.
- The benefit is less than the IRS per diem ($380 in 2020).
Living a rewarding life is all about being present in the here and now. Planning for your future health care can help you and your family do that. So you can enjoy the everyday moments and confidently look forward to significant milestones like retirement.