Alternative Ways to Pay for Long-Term Care

Long-Term Care costs can be overwhelming, so planning around this likely event for most people is a part of planning you can't ignore

Did you know...

Research shows that 70% of Americans who reach age 65 will have a need for some long-term care assistance in their life?
Another study shows that the average cost of a Long-Term Care event will be about $250,000, when considering the average length of a future healthcare need is approximately 2.5 to 3 years?

Have you thought about how you or your family might pay for this likely scenario if - or when - it happens?

Even before all of this talk about the coronavirus and its long term impact to people's lives, there was already the concern in financial planning around what happens if we lived long and needed care along the way.

With continued advances in medical sciences, people today are living longer, and along with it comes the greater likelihood of a long-term healthcare event. Even when some might say, "But, I'm staying healthy". That's even more reason we need to plan beyond just meeting our needs in retirement; it's also about planning for longevity and the potential need for care as we age.

What Is Long-Term Care and what does it cover?

Long-Term Care pertains to the services people may need assistance with as they age or become ill. These tasks are referred to as Activities of Daily Living (ADLs) and include the basic tasks one needs to do such as bathing, dressing, toileting, maintaining continence, meal preparation and feeding.

In addition to paying for the services to provide assistance with daily living, long-term care insurance also covers:

Nursing home care
Assisted living facilities
Adult day care services
In-home care
Care coordination
Hospice

It’s not a particularly pleasant aspect of aging and planning for that matter. For some of you, perhaps this may not even be on your radar yet. But for others, you've already experienced this first-hand if you've seen or helped your parents or elderly loved ones go through this. The fact is most of us are likely going to need long-term care services before we die.

According to a study by the U.S. Department of Health and Human Services, nearly 70% of Americans who live to age 65 will need long-term care at some time in their lives, and over 40 percent in a nursing home, and the costs are staggering. According to the latest Cost of Care Survey by one of the major insurance carriers, the average cost in 2019 for a semi-private room in a nursing home was approximately $90,000, while a private room cost $102,000.

The dilemma here is that most Americans already don't have enough for retirement, many of whom are at risk of running out of assets before their lifetime.

And, that's before a future healthcare event.

By not planning in advance, you could be risking assets that you may have saved for retirement or for loved ones, and instead may end up using those same assets to provide for your care if you entered a prolonged period of physical illness, disability or severe cognitive impairment that keeps you from living independently.

Being that long-term care is an event that's likely to occur, one might think these services would be covered. But, most health and disability insurances won’t cover long-term care. So, what are your options?

While most seniors have Medicare as their primary source for assisting with health care costs, Medicare does not pay for long-term stays in a nursing facility.

Medicaid, on the other hand - while the most common source of long-term care financial assistance - can have some complicated financial qualification rules that can prohibit someone from even qualifying for the program.

So, others turn to private (traditional) long-term care insurance. But less than 10 percent of those ages 45 and older have this insurance.

For our purpose today, we'd like to introduce alternatives to traditional long-term care insurance. This is not meant to provide all the details, rather it is just to provide you with the awareness of other options available. While these options are not (yet) widely-known, they have been around for a while and can even be more favorable due to their ability to provide additional benefits beyond just long-term care coverage. These added features include a death benefit if not used for long-term care or even providing liquidity should your plans or intentions change.

What makes these options noteworthy is that instead of solely relying on on-going cashflow to pay for premiums - which can be challenging for seniors living on a fixed income - these can instead be funded by repositioning assets you might already have. Assets such as old, permanent life insurance policies (Whole Life, Universal Life), non-qualified assets like CDs not earmarked for liquidity or annuities that are no longer needed for retirement income.

Alternative Options to Long-Term Care Insurance:

1. Asset-Based Long Term Care

Allows assets such as cash, or money in CDs, along with other non-qualified funds to be 'cost-shared' with insurance companies. This cost-sharing allows for funds to be leveraged for multiples of the amount deposited. Usually the younger and healthier the person, the more leverage. For instance, a female in her early 60's could leverage up to 4 times in LTC benefits. In addition, this type of policy can also provide a death benefit and in some cases, even needed liquidity by means of a return-of-premium feature. So, by simply re-positioning an asset out of one pocket into another, the same amount that would otherwise have been used for LTC could now get up to 4 times, all while having full control of the asset.

2. Hybrid Life Insurance

This allows someone to use the death benefit of a life insurance policy in advance as a form of living benefit for the purpose of paying for long-term care needs. Usually a % of the death benefit is guaranteed to be made available on a monthly basis. For instance, if one were to purchase a $500,000 policy with a 2% LTC Benefit Rider, this would mean that on a monthly basis, the policy owner can have access to $10,000 for LTC out of the policy's death benefit. While this reduces the death benefit in the future, this provides the owner with the needed coverage now without having to use other assets that might be needed to live on.

3. Hybrid Annuity-based LTC

This allows someone to use both non-qualified and qualified annuity funds to fund LTC. This is technically a 2-step process wherein the funds first transfer into an annuity (alleviating tax implications in a like-kind transfer), then systematically used to fund the premiums of a life insurance-based LTC policy. An added benefit when using non-qualified annuities as the source of funding is that gains can be withdrawn tax-free once converted into coverage for LTC and used for that purpose. Some solutions even allow for 'qualified' funds such as IRAs to be used for funding and even stretch the benefit over two lives by providing Joint Coverage over the lifetimes of both spouses.

Let's Start the Conversation

For many, even starting the conversation around Long-Term Care can be overwhelming. But, it doesn't have to. Even when there are a lot of unknowns, with the proper planning, guidance and the access to the right resources and solutions, this part of your plan doesn't have to be emotionally burdening.

Here’s how you can benefit:

The costs for a long-term care event can be overwhelming and can place tremendous burdens on your loved ones.

So, by planning ahead and purchasing long-term care insurance,

you get that peace of mind.

Here's the Best Part:

Getting guidance on your Long-Term Care options is Free

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Meet Chad Albano

Chad Albano is an Executive Director with Global View Capital Advisors. He has nearly two decades in the financial services industry. Chad holds a Bachelor of Business Administration in Accounting from the University of Wisconsin - Whitewater. Prior to this role, Chad had over 10 years experience in various roles within corporate finance and accounting, ranging from tax, financial reporting and planning, distribution and manufacturing.

In his role at Global View, Chad has 3 main areas of focus: (On the individual side) planning for Baby Boomers and pre-retirees, helping companies improve their 401(k)s, and working with companies come up with Advanced Plan Designs that focus on helping management teams fill the gaps in their succession planning, key person protection, executive incentive plans and employee retention.

Chad is married to his best friend, Nicole, and has 2 daughters. His faith in God plays a key role and serves as his moral foundation in life. Chad values continued learning and growing, mentoring and cultivating others, public speaking, and enjoys family time, camping, fishing and personal defense training.