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Finding the Money for LTCi
When a client tells me that long term care insurance is “expensive”, my response is invariably, “compared to what?” Insurance for our two cars plus a van that we only use on vacation is $1200 per year and we only assume liability. If we had a wreck, it would pay for the other’s car. We wouldn’t get anything!
Our home insurance cost around $700 and it was the cheapest company we could find. We’ve never had to use it, but we’re not even tempted to give it up.
Our health insurance is the pit – and if you pay for private health insurance, for COBRA, or just to pay your own medical bill, I bet yours is about the same. We pay a modest $6,000 a year without vision or dental care, and we each have an annual deductible of $2,500. Unless we have to be hospitalized, we will never pay those deductibles, but we will pay that bill every month and be grateful to have it.
By contrast, our LTCi bill for a policy that covers us both for five years with a $150-a-day benefit is about $160 a month, or just under $2,000 for the year. If we were to use it, we have a prize pool of $547,500 to spend. Additionally, we have the Survivor Released Rider, which means one of us will stop paying the premium when the first one dies. None of our other insurance policies, not even our homeowners, will ever give us so much for so little!
Creative planning
When to buy
The best time to buy LTCi is between your late 40s and early 50s. In your younger years, a private disability insurance policy that replaces your income is more appropriate. Also, some companies allow you to convert disability insurance to LTCi at age 65, without medical underwriting.
For most people, the best time to buy LTCi is mid-life when you’re also making more detailed plans for retirement. Look for a company that does NOT have periodic rate increases, such as an automatic increase every five years. The best companies try to price new policies to absorb rising health care costs, protecting customers with older policies from multiple rate increases. Be aware, however, that any company could have a rate increase in LTCi because it is a health insurance.
How to pay
No one can “afford” to add another monthly bill to their budget. This is because no matter how much money we have, most of us live within our income, hopefully setting aside for retirement, but maintaining a lifestyle equal to our income. Very few people have a hundred or two more just waiting for an insurance agent to suggest how to spend it. You will need to assess your finances; you should be able to cover the LTCi without taking food off your table or leaving the lighting bill unpaid.
Most people pay with a monthly bank draft. If you don’t have a big bank account, it’s usually easier to spread the payments out over the year. However, you have the option of paying quarterly, semi-annually or annually. You can also change your payment method at any time once the policy is in place.
Annual payment
Many people, especially retirees, start their LTCi payments on a monthly bank draft and switch to annual payment in subsequent years. Paying annually saves money, since all companies charge a few extra dollars for monthly processing. If you’re still paying taxes and receiving a refund in April, it may be worth planning to use some of that refund to pay the annual premium and then pay it annually at that time.
Another way to pay for LTCi — and keep all of your earnings in your pocket at once — is to take advantage of IRA accounts, mutual fund returns, or annuities. If you can find a company that sells both annuities and insurance, you’ll be in an ideal situation. You can rollover an IRA into a good high-interest fixed annuity and use some of the interest to pay your LTCi premium. Be sure to look for a fixed and non-variable annuity because it is impossible to lose money with a fixed annuity. Also, if it is qualified money, the government will require you to take a distribution every year after you turn 70 and a half. You can use this required distribution to pay your premium, and if you itemize your taxes or have your own business, you will be able to deduct most of the premium from your taxable income.
Planning to use an annuity to fund your LTCi has other benefits as well. An annuity is tax-deferred until you withdraw it, which means you can put more of your retirement income in your pocket. Plus, while you can draw on it during your lifetime, it works like life insurance when you die in that it’s distributed directly to your beneficiary without going through probate.
Paying for LTCi without taking it directly from your income just requires a bit of advance planning. If your premium is around $2,000 per year, for example, a fixed annuity of $67,000 would pay your LTCi with interest to be resold. Your principle would never be touched!
You want it, but you really don’t have the bounty
Some people have experienced the difficulties of caring for an elderly parent or the anguish of seeing them lose everything to a retirement home. 2005 was the last year seniors could transfer their assets under the current three-year look-back period. In 2011, the government can look back five years, which means assets transferred in 2006 will be subject to penalties. Many people who have seen their parents lose almost everything would love to have LTCi, but are not medically qualified or really cannot afford it.
If you’re not medically qualified, there’s not much anyone can do. However, if it’s about money, be upfront with your agent. After all, even a year or two with a benefit as low as $100 a day is better than no coverage at all.
However, if you can’t afford LTCI and you know you really should have it, you should get the family together to discuss it. Which of them would be willing or able to take care of you? Would each family member be willing to contribute a small amount now rather than trying to come up with $4,000 or more a month later to save you from losing the family home?
The true goal of LTCi
In the long run, LTCi is not about you. Yes, it provides care for you when you need it, but it’s really about your family. It’s about sparing them the expense, the frustration, the guilt associated with caring for a sick senior when they have their share of problems. It’s about keeping your spouse alive instead of wearing themselves out prematurely taking care of you. According to the Alzheimer Foundation, 65% of caregivers die before the person they care for. Additionally, over 70% of these caregivers are eventually a daughter or daughter-in-law who will do most of the work because none of the other family members will. The end result is discord within the family, as those doing the work will feel like they’ve contributed more than their fair share. Do you really want to be remembered as a source of conflict? They deserve to be included now. LTCi is really about those you love.
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