Should You Consider Long-Term Care Insurance?

According to an AARP survey, 43% of 65 year old persons will spend time in a nursing home. Of those, 55% will spend more than one year in a nursing home and 21% will stay more than five years. And even if you do not spend time in a nursing home, you may need assistance with activities of daily living (ADLs), such as dressing, eating, mobility, prescription administration, bathing, grooming, toileting, money management, shopping, food preparation, communication and community mobility.

  • 1 in 1,200 homes burn down. Do you have homeowners insurance?
  • 1 in 250 cars are in an accident, Do you have collision insurance?
  • 1 in 2 people 65 or over go into a nursing home. Do you have long-term care insurance?

Long-term care insurance is used to pay for assistance when you can no longer perform certain ADLs, depending on your long-term policy. Also depending upon the policy, the assistance could be in your home, an independent or assisted living facility, adult foster care home or nursing home.

Some people believe they do not need long-term care insurance because they think that Medicaid will always be there in its present form to cover their nursing home and other assistance expenses. The truth is that most of the time, with the exception of certain waiver and pilot home programs, Medicaid will only cover long-term care expenses in certain nursing homes, of which there are only five in St. Clair County. Most long-term care insurance policies are much more flexible than Medicaid and will pay for long-term care expenses wherever you live, whether you are in your home, or not.

You may think that you cannot afford long-term care insurance. Well, if you are in your 70s and already have a debilitating illness, then long-term care insurance may be cost prohibitive. However, if you are quite healthy and in your 50s, it can be surprisingly affordable.

According to the insurance agents with whom I have consulted, there are three main types of long-term care policies. The first type is a traditional long-term care policy; you pay an annual premium until benefits are needed, and if no benefits are needed, the policy just lapses. The second type of long-term care policy is one which will pay a death benefit to your named beneficiaries if less than a certain amount of long-term care benefits have been paid out of the policy during your lifetime. The third type of long-term care policy is a life insurance policy in which you can access the death benefit of the policy during your lifetime to pay for long-term care expenses.

The underwriting requirements for life insurance are a little more relaxed than for long-term care policies. You may qualify for the third type of long-term care policy, which is life insurance-based, when you would not qualify for the other first two types of long-term care policies.

My wife Emily and I recently purchased long-term care policies. We each had an existing universal variable life insurance policy we bought when the kids were born. We purchased the policies for protection for income replacement, the kids’ college education and the payoff of our home mortgage. Fast forward almost 30 years. We are in are late 50s planning for retirement in the next decade, the kids are out of college supporting themselves and our mortgage is paid off. We do not need the life insurance, but are concerned that our health may deteriorate to the point at which we will need assistance with ADLs.

In addition, because of our ages, the insurance costs of the existing variable universal policies were increasing and would soon start eating into the cash value and death benefit of the policies. I have seen this happen time and time again over the years with my estate planning clients. We were able to do a Section 1035 like-kind exchange of the cash value of the existing variable universal life insurance policies for new life insurance policies with a fixed premium and which allow for the access to the policy death benefit during our lifetime for long-term care expenses if we are unable to perform two or more ADLs.

When purchasing a long-term care policy, investigate the issuing company and the policy benefits. Read online reviews. Some insurance companies are known for making things difficult for their policyholders to claim long-term care benefits. If the company does not pay the benefits, they boost company profits. For example, we recently had a client with a long-term care policy in a long-term care facility and who passed away. After her death, the insurance company refused to pay her benefits to anyone except a probate court administered estate.

The company refused to pay the benefits to her surviving spouse or other heirs, to her statutory affidavit successor or the trustee of her trust. And if her survivors did not provide probate court appointment papers within 45 days of the filing of the claim, the company would cancel the claim. The surviving spouse then requested that the company change the beneficiaries of his long-term care policy so this would not happen after his death. The company refused his request and said that they would only allow post-death benefits to be paid to a probate court administered estate.

If you or a loved one already has a traditional long-term care policy, you may want to monitor it so that the premiums are regularly paid. As the policyholder ages and gets more forgetful, it increases the probability that the policy will lapse for non-payment of the premium at a time when the benefits of the policy will most likely be needed.

Also recognize that the premiums of traditional long-term care policies will generally increase as the policyholder ages. The policyholder may want to cancel the policy because of the premium increase at a time the policy benefits may be needed. In our office, we’ve had three cases in the last five years in which clients in their 90s wanted to cancel their long-term care policies when the annual policy premiums doubled from about $1,400 to $2,800. Even if they paid the increased premium for ten years, they would recoup the premiums after only about three months in the nursing home. Thankfully, all three clients kept their policies, so when they ended up in a nursing home, they qualified for long-term care policy benefits

Long-term care insurance may benefit you. It is one option for paying for your care when you can no longer care for yourself. It can protect your family’s financial future and your own investments. There are qualifications that need to be met with health and age. This type of insurance is more expensive the older you get and almost impossible to get if age-related illness has already occurred. You may want to investigate long-term care insurance while you can.

By Matthew M. Wallace, CPA, JD

Published edited December 24, 2017 in The Times Herald newspaper Port Huron, Michigan as: Should you consider long-term care insurance?

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