Insurance for Long-Term Care Planning
By 2034, for the first time in U.S. history, the U.S. Census projects that older adults will outnumber children. As our society ages, people who are working now must balance saving for retirement, paying for college for children, and shouldering the burden of caring for their parents.
Buying a long-term care insurance (LTCI) policy is one way to help pay for these expenses in the future. Unfortunately, these policies can be expensive. Also, the older you are, the more expensive these policies become. Somewhere between age 50 and 55 would be a great time to start shopping for LTCI coverage.
Long-term care insurance policies can provide a wide array of care, ranging from simple help on a weekly basis all the way to full-time nursing home care. While the insurance isn’t cheap, there’s something to be said for having the peace of mind that comes with knowing you or your parents are covered. An LTCI policy can also allow you to make healthcare decisions based on need and preference – not just cost.
How Does It Work?
Long-term care insurance policies are customizable to your needs. You can select the level of coverage most appropriate for your situation. One thing to note is that each policy comes with limits: a maximum daily benefit and a maximum lifetime benefit.
You also have the option to customize other aspects of the policy, such as:
- Cost-of-living adjustments to protect against inflation,
- Shorter elimination periods (like an insurance deductible, the elimination period is the period you pay for care before the insurance company kicks in), and
- Fewer restrictions on the types of coverage.
When you make a claim, the insurance company will begin paying after the elimination period. During this time, you’ll need to pay for your own care, so you’ll still need to set aside some funds. This is where having an emergency cash reserve comes in handy.
Are Premiums Tax Deductible?
Long-term care insurance premiums can be considered medical expenses for tax purposes, but only if the policy meets certain federal standards and is labeled “tax-qualified.” Be sure and consult with your CPA for your specific situation.
How Do You Purchase A Policy?
Until recently, long-term care insurance was almost exclusively available through an agent. However, the industry has been forced to adapt over recent years. The costs of long-term care have skyrocketed. This has created losses for insurance companies as policy payouts threaten to outstrip gains from the insurance company’s investments in the prevailing low-interest rate environment. Today, the number of insurance companies that offer long-term care insurance has plummeted to only a handful nationwide.
The insurance carriers that have remained in the long-term care market have started to change their business models. More and more, they are eliminating agents and are setting up direct-to-consumer models. You should be able to find several quotes with an internet search. Be sure you select an insurance company with solid financial performance and high ratings.
Another option that has come into favor recently is a hybrid life insurance policy with a long-term care insurance rider. While more affordable than traditional long-term care insurance, these policies can be complicated. However, it’s better than nothing if you or your parents will need some help paying for long-term care expenses.
Do You Need Long-Term Care Planning?
Because of the expense, long-term care planning can be a “Catch-22” for many people these days. If you can afford the policy premiums, then you can generally afford to self-insure. On the other hand, if you will need the coverage, paying for the premiums can really stretch your budget. That being said, pricing out policies is always a good exercise.
Once you’ve helped your parents shop for a long-term care insurance policy, consider pricing one for yourself, especially if you are already in your 50s. It’s never too early to start planning the risk management aspects that will help pay for those later-in-life expenses.
If you’d like help with long-term care planning for you or your parents, then click here to set up a quick, complimentary introduction call to see if Prana Wealth is a good fit. We do still have the capacity to take on new clients.
As a fee-only financial advisor in Atlanta, we can (and do) work virtually with clients all across the U.S. and we’re here to help you when you’re ready.