Long-term care riders are like health and car insurance, you want the protection just in case you need it, but hope never to use it. Social security and Medicare offer limited protection if you need long-term care recovering from an illness or an injury.
When Social Security became law in 1935, a man’s life expectancy at age 65 was 78; females would usually live to 80. The good news is that since then life expectancy has increased for men to 86.6 years old, mostly in good health, and women gained longevity to 88.8 years of age.
The danger is that as Americans continue to grow their life expectancy, the risks associated with an injury or illness requiring long-term care grow too.
High and medium net worth individuals need a discussion with their financial advisor about protecting themselves from the financial risks of needing long-term care that can quickly damage your financial worth.
The Affordable Care Act does nothing to address the aging of America and makes no provision for long-term care. This is actually very frightening. According to insurance executives, seven out of ten of people who live to more than 65-years of age will need long-term care of some sort. Without advance planning for this need, payment is made by family members or the government. Once a person has exhausted most of their assets, Medicaid (Medi-Cal in California) will pay for a stay in a nursing home facility.
Happily, there are solutions to this problem that you can talk with your financial or retirement advisor that helps solve it.
- One solution is to use life insurance with living benefits to provide long term care.
- A second solution is to buy a separate policy for long-term health care.
- A third option is asset based long term care solutions that provide long term care benefits in exchange for parking your money with a company.
The insurance industry reports that at least ten major companies added long-term care riders to their life insurance products in the past few years and more companies are following.
In most cases, a critically or chronically ill policyholder can get an advance on their death benefits and repay family members who helped with health care expenses or they can make payments directly to the care facility. Moreover, these are tax-free distributions.
Another great feature of these life insurance policies with long-term illness riders is they do not require that withdrawals go for paying qualified long-term care costs to get accelerated benefits. Once the policyholder receives payment from their insurance company, the money is theirs for spending without any restrictions. It can go for paying unlicensed family members who are caring for the policyholder or other medical expenses.
In fact, the policyholder can use the money for non-medical expenses too. If a bucket list is short, and the policy owner wants, some items on the list can be stricken after recovery. While the face value of the policy shrinks, after an injury or illness has you receiving long-term care you are entitled to an adventure when you are feeling well enough.
These riders also have a price tag – according to insurance executives, policyholders pay between 10 and 20 percent more for the policy over one without long term care benefits. Additionally, in most cases when a seriously ill policyholder receives money from their death benefits it is limited to $330.00 per day for long term care. According to “2014 Tax Facts on Insurance and Employee Benefits,” published by the National Underwriter Company, payments over $330.00 per day are considered taxable income.
There are other ways to insure against long-term health costs. Insurance companies issue policies specifically for protection against long-term health care costs. However, from the perspective of monthly premiums they are way less if purchased when the buyer is under 40.
As with most matters surrounding finance and retirement, a conversation with an investment professional that focuses on retirement planning is the best way to determine what type of long-term care coverage is best for you.
Any comments regarding safe and secure investments, and guaranteed income streams refer only to fixed insurance products. They do not refer, in any way to securities or investment advisory products. Fixed Insurance and Annuity product guarantees are subject to the claims?paying ability of the issuing company and are not offered by Global Financial Private Capital. Global Financial Private Capital nor their Investment Advisor Representative(s) provide specific legal or tax advice. Please consult with your tax advisor or legal professional for guidance with your individual situation
Jared M. Elson is a graduate of San Jose University with a degree in Communication and Business. He also has a background working in the high tech industry, having spent nearly a decade, taking on multiple roles with Yahoo! prior to working as an investment advisor. Jared offers investment advisory services through Global Financial Private Capital, an SEC Registered Advisor. He has lived in the south county area all his life. He was raised in Morgan Hill, California, and he calls Gilroy his home. Jared enjoys playing amateur ice hockey, outdoor activities, reading and spending time with his family and friends.
