Business Columns & Blogs

Long-term, you need this insurance

Long-term care insurance is perhaps one of the most important considerations we should make as we age. It is estimated that 75 percent of the average Americans over the age of 65 will need some form of long-term care. Unless you are very wealthy or very poor, I would strongly suggest exploring long-term care insurance.

LTCI covers a number of services, from in-home care and adult day care, to residential care in an assisted care facility and nursing home facilities. None of us like thinking of spending the remainder of our years in a nursing home. Studies have shown that the average stay in a nursing home is less than 18 months. The true value, in my opinion, is that LTCI may help you stay in your home longer. If you are unable to take care of yourself in your home, you may be forced into a facility earlier than necessary. If you had LTCI that, as they all do, allow for in-home care, you will be cared for in your home. I would like to stay in my home as long as possible, as I am sure most of you would. LTCI can help.

Unfortunately, long-term care does not come cheap. According to Genworth Financial, a private room in a nursing home can cost up to $90,000 a year and a home healthcare worker can average $45,000 per year.

Traditional LTCI is typically paid for like any other insurance with an annual or monthly premium. Premiums for someone in their 50s could be $3,000 a year or more. These premiums can and have gone up considerably in most cases. It has been as much as 50 percent in some cases. We are living longer! That is one deterrent, the other is the “use it or lost it.” If you do not use your LTCI, you may lose all of the premiums you have paid into it.

These deterrents are some of the reasons that only about 8 million people have some form of LTCI. There are estimated to be 70 million baby boomers that will need some form of assisted care.

Perhaps the most important development in LTCI has been the development of hybrids. These hybrids, which are proving very popular, combine life insurance or even fixed annuities with long-term care. We will use life insurance for our discussion to follow.

They offer an alternative to the “use it or lose it” as with standard long-term care policies. These hybrids can be used as a fixed income investment, long-term care coverage and life insurance all in one. If you need long-term care, it’s there. If you do not use the LTCI and pass away, your beneficiaries will receive the death benefit or cash value, whichever is larger. If you need the income, you can tap into the policy. Remember that any withdrawals either for income purposes or long-term care will reduce what is left for your beneficiaries.

A lump sum amount is required for a policy. Some allow a lump sum and an annual payment as well. Once established, that annual payment amount is fixed. It will not change. Any existing cash value life insurance policies you may have can be 1035 exchanged (tax free) into a newer hybrid policy. Those of you who have existing cash value life insurance policies and do not have LTCI should really look into these new hybrids. Remember, it’s life insurance and you will be required to be in relatively good health to get a policy. The younger you apply the better.

It is important to note here that a new surrender charge will begin with a 1035 exchange. There may also be charges for early surrender of the existing policy. This is insurance. It is very important to work with an adviser who understands your entire financial situation, not just a product pusher.

Long-term care is the biggest risk that isn’t discussed enough. Not planning for this possibility is a major mistake. If you are a woman, the odds are you will be the caregiver for your spouse. But who will be your caregiver? I recommend that if a policy is unaffordable for both, then the wife, a least, gets coverage.

You probably need this.

Michael T. Doll, an investment adviser with the Longboat Key Financial Group, can be reached at 941-896-2437, or