Asset-Based Solutions for Long Term Care Coverage are Gaining Favor
I recently came across some very enlightening statistics: The odds of a person in the U.S. being involved in a serious automobile accident are only 3 in 900 or 0.33%. The odds of having a residential fire in your home are 7 in 900, or 0.77%. The odds of ever being admitted to a critical care unit are 21 in 900, or 2.3%. Virtually every working American has insurance coverage to protect against these catastrophic occurrences, but only 5% of Americans has actually purchased long-term care insurance. What are the odds that we would ever need some sort of long-term care benefits? Would you believe that 70% of Americans who are currently age 65 or older will need some sort of custodial medical care before they exit this globe?
The question then becomes why only 5%, when the need is so apparent? In my view, there are two reasons. The first is the cost of long term care coverage. For example, a married couple, both age 55 in good health, would together pay about $2500 annually to provide enough policy benefits to cover home health/long term-care expenses in Aiken and in the CSRA. That required premium may be deductible as a medical expense, depending on the magnitude of other medical expenses you have in a given calendar year, since only those medical expenses in excess of 7.5% of your adjusted gross income are deductible.
If you have self-employed income that is greater than your long term care premium, the good news is that the entire premium is generally deductible for you.
The other reason why so few persons have actually purchased long-term care coverage is that if you don’t use it, you lose it. In other words, there are typically no refund options in older policies. Current long-term care policies do offer a return of premium option, but for an additional cost, which may make the overall cost prohibitive.
As a result of these two factors, most Americans have chosen to self-insure their future long- term care expenses. Actually, that approach is not that bad an idea, if you and your spouse have sufficient assets set aside to pay for future home health/long term care expenses. How much should you set aside? Well, the average stay in a facility or the average length of time one would require in-home care is about 3 years. In Aiken that length of care would cost in the neighborhood of $125,000-$150,000 in current dollars. But what if you or your spouse were to contract Alzheimer’s or dementia? Then, the period of confinement could be as long as 7-10 years, at $45,000 to $50,000 per year.
An interesting product solution is now available as an alternative for those who wish to self-insure against the costs of long-term care. That solution is an asset-based one, and it operates like this example: for a 65 year old female, who is able to reposition $100,000 of her assets, she could purchase a single premium life insurance policy that would provide her heirs a death benefit of $166,000. But this policy has two other great features: while she is alive, should she ever require home health care or long term care benefits, the policy would provide up to $500,000 for those expenses, provided that she could not perform at least 2 of 6 specified activities of daily living, such as bathing, toileting, dressing, eating and others. And the best part is that if this lady were ever to change her mind, this product provides an unconditional money back guarantee at any time. Sounds too good to be true, right?
Perhaps, but in order to qualify, this person must be relatively healthy; she must have the assets to re-position; and finally, she must actually purchase this policy. Believe it or not, there are several highly rated life insurance companies who offer products such as the one I am describing.
Check with your financial advisor and find out if he or she is acquainted with this dynamite method for providing long term care benefits.
Gregory D. Roberts, CFP, CLU, ChFC, CLTC, EA
Aiken, South Carolina 39803