Will your health affect your wealth?
Most people see themselves living a long life, investing and planning throughout their working years to construct a financially secure future where they can spend time doing the things they enjoy the most. As part of your financial planning activities, it’s important to understand the potential impact that needing long term care may have on your assets, your family and your future.
The reality is, the longer you live, the greater the likelihood that you may require long term care. The costs associated with long term care are significant. While it can take decades to accumulate the assets you need to comfortably retire, just a couple of years paying for long term care may threaten a lifetime of savings.
Many people can’t imagine needing hands-on help with daily life, yet 70 percent of people above age 65 will require long term care services at some point in their life. With the advent of modern medical care, the need for extended long term care is growing rapidly. Some patients with Alzheimer’s disease may require 24-hour long term care for as long as 10 years.
Assuming you or the government will cover the cost of your care
Without a long term care policy, you are effectively self insuring your chance of paying for care. Or, you may be planning on spending down your assets and counting on the government to house you in a Medicaid senior facility. These options are less than desirable, however the government has done something to help you plan for long term care events.
On January 1, 2010, the Pension Protection Act (PPA) went into law. One section of the law allows you to purchase qualified and non-qualified annuities and take cash value withdrawals for qualifying long term care expenses, income tax free. These annuities can be single premium policies or paid up over several years. Many people have steered clear of long term care insurance because they were afraid they would pass away and never see any benefits from their sizable investment. Using annuities to pay for your long term care expenses means you will always have the current value of the annuity as part of your estate.
There are also hybrid life insurance/long term care policies that allow you to take withdrawals for qualified long term care expenses, and your investment is protected by the death benefit of the policy.
In addition to the tax and survivor benefits associated with these products, there is also simplified underwriting compared to traditional long term care policies. Since many people put off the purchase of long term care coverage until later in life, less intrusive underwriting is a huge benefit to many people.
Since these are annuities and life insurance products, your investment is a known amount at the issuance of the policy. What many people don’t realize is that it’s not uncommon for traditional long term care policies to have annual rate increases from 10 to 40 percent a year. While traditional health-based long term care policies have fallen on hard times of late, combination long term care products had double digit growth in 2009 and a phenomenal 62 percent rate of growth in 2010.
These combination products allow people to reallocate their assets into one of these plans instead of funding a long term care insurance policy with monthly income.
Combination long term care products, because of their life insurance and annuity foundations, can provide benefits for life events other than just long term care. Most accumulate cash value which can be accessed in an emergency. And at death, any cash value or death benefits not used for long term care are passed on to the insured’s heirs. For clients seeking value, a guaranteed benefit that will be paid is always appealing.
Velapoint LLC, a nationwide insurance brokerage, has a dedicated senior health insurance team to help you find the best Medicare supplemental, Medicare Advantage and prescription drug plans. Call Velapoint at 877.498.9073 for your free insurance review.