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Planning for Long-Term Care Needs

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Today’s consumers are facing a dilemma: at a time when long-term care insurers are scaling back coverage, more individuals than ever are recognizing the need to protect retirement savings from potentially devastating costs.  While the good news is that people are living longer, the bad news is that increased life expectancy also increases the odds of needing long-term care services, which can be expensive.  So the question is, what are the options when it comes to paying for long-term care costs?

  • Long-term care insurance policy: Depending on when the contract was written, a typical policy helps cover the cost of long-term care services, including: assistance in your home with daily activities, such as bathing, dressing, meals and housekeeping services, visiting nurses and/or home health aides who come to your home.  Covered services may also include adult day care, the cost of an assisted living community, and nursing home care.
  • Hybrid life insurance policy with long-term care benefits:Several companies have introduced policies that combine life insurance and long-term-care protection.  An individual invests a lump sum or pays premiums for a period of time, and then receives long-term-care benefits, a death benefit, or a combination.  These policies may be appropriate for individuals who need life insurance but who also want protection against long-term-care costs.  Long-term care benefits are triggered when you need help with at least two daily activities, such as bathing, eating, transferring, dressing, or if cognitive impairment is present.
  • Life insurance policy with accelerated death benefits: This is a feature included in some life insurance policies which allows a policy holder to receive a tax-freeadvance on a life insurance death benefit while still alive.  In some cases, it is an additional cost to the policy and in others, the insurance company includes it in the policy for little or no cost.  There are different types of accelerated benefits, each of which serves a different purpose.  Depending on the type of policy, you may be able to receive a cash advance on a life insurance policy’s death benefit if diagnosed with a terminal illness, a critical illness, a chronic illness requiring long-term care, or if you are permanently confined to a nursing home and incapable of performing activities of daily living.
  • Combination annuity and long-term care policy:A few companies offer a combination deferred an­nuity and long-term care policy that allows you to leverage your investment three-to-one.  For example, a $100,000 annuity could pay up to $300,000 in long-term-care benefits.  These policies are attractive to people who already own a deferred annuity and want to exchange it tax-free for a combination annuity policy and for those who might not qualify for a traditional long-term care policy.  If the money is used for long-term care costs, the distributions are tax-free.  Withdraws for any other reason will result in ordinary income taxes on the earnings. Any unused portions of the annuity (minus any long-term care payouts) may be left to heirs.
  • Longevity annuity insurance:This is a specific type of annuity that pays out only upon reaching a certain age, usually 85.  It is a viable way to ensure that an individual will not outlive savings and allows protection against care costs that often occur at advanced ages.  For example, if you invest $100,000 at age 65; starting at age 85, you would receive payouts of $67,000 per year for the rest of your life.  The money can be used any purpose, including long-term care.  Anyone may purchase longevity insurance, regardless of health status, so it may appeal to people who can’t qualify for stand-alone long-term care insurance.  The downside is that the funds cannot be used before age 85.

According to the Life Insurance Marketing and Research Association (LIMRA), 11 of the top 20 insurers have stopped selling individual long-term care policies in the past five years, while others are paring back products.  It is important to seek counsel from your CERTIFIED FINANCIAL PLANNER ™ in order to evaluate the options that best fit your situation. As with any financial decision, it is prudent to understand the taxation of each choice. We are here to help analyze what is best for your situation.

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