How do you decide whether to purchase long-term care insurance? Is the choice just a lucky guess or are there guiding principles? If you buy it, but never receive benefits, did you make a bad choice? By the time you think you might need it, is it too late to buy it? If you do buy it, what kind of benefits should you look for? And who does it really benefit? These questions should be answered by applying the basic mantra, "Insure against unacceptable losses." The deeper question, of course, is what is an "unacceptable loss?"
Today, 50% of women age 65 will live 20 more years, thus making the need for long term care real. Those with higher education and higher income will live longer. Of the 4 million men age 85, 30-50% of them have dementia. Additionally, we're getting healthier physically as we get older (thus living longer).
Paying for long term care is expensive - $60,000 to $90,000 annually for nursing home care; assisted living runs about $35,000 - $50,000. It is important to review what care a long term care insurance policy will cover. Often policies exclude coverage for mental illnesses other than dementia. Many will not cover you if you have a pre-existing condition. Long term care insurance policies may pay for skilled nursing home expenses, custodial nursing home care, care provided in an assisted living facility, and home care. The daily benefit amount may vary with a lower daily benefit for home care (which is usually more expensive). You only qualify for benefits if (a) you are not able to perform a specified number of "activities of daily living," (b) have cognitive impairments requiring supervision, or (c) have a medical need for long term services. Most people in nursing homes today have dementia, which requires long term care. The average stay in a nursing home (as opposed to an assisted care facility) is one year. Can client self-pay for one year, access other income such as Veterans benefits, or change investment mix to generate more income?
All insurance insures against unacceptable losses. The reason to buy long term care insurance is NOT to pay for your long term care costs (because Medicaid will pay), but to protect your other assets. Long term care insurance does not pay for care, but pays the client a fixed daily rate. Policies can be bought for a 1-year, 3-year, 5-year, or life term. The shorter the period, the cheaper the premium. Most policies do not raise individual premiums (so buy younger rather than older) but the company that issued the policy may have a general rate increase for all policy holders every several years. Policies generally have an "elimination" or waiting period, which acts much like a deductible. It is the amount of time before the policy will pay benefits. The longer the elimination period, the lower the premium.
There are income tax consequences in receiving long term care insurance and purchasing long term care insurance. Qualified long term care services are deductible medical expenses subject to the 7-1/2% floor under IRC ยง213(d)(1)(C). Amounts paid as long term care insurance premiums are deductible as a medical expense. There are certain requirements for qualification for these deductions.
Additionally, benefit amounts received under a long term care insurance contract may be excluded from gross income. A self-employed client may deduct long term care insurance premiums in determining AGI up to the application percentage for the year, which currently is 100%.
Since the Deficit Reduction Act of 2005, states may create "Long Term Care Insurance Partnerships." This Act provided that, in determining eligibility for Medicaid for long term care expenses, a state may disregard ay assets or resources in an amount equal to the insurance benefit payments made to an individual under a long term care insurance policy. This may help the community spouse.
Some good reasons for purchasing Long Term Care insurance:- To protect the value of one's estate against diminution due to high cost of long term care;
- To protect the financial security of the well spouse;
- Second marriage;
- Fear of relying on Medicaid;
- To cover the five-year look-back period because of gifts;
- Desire to remain in the home with home health care;
- Desire to pay for assisted living without depleting estate or lowering quality of life for community spouse.
- Difficulty of understanding or comparing value of the product and comparing policies;
- Probability of substantial premiums increases;
- Lifetime premium payments;
- Fear of relying on financial viability of insurance company that issued policy;
- Difficulty in collecting benefits from insurance company;
- Dealing with high pressure sales pitch from agent;
- Do not want to go through underwriting medical exam and disclosure of medical history to insurance company and agent;
- There could be better alternatives, such as second-to-die insurance (to benefit heirs)
Since this office does not sell long term care insurance, we can provide an unbiased opinion to our clients about purchasing a long term care policy. Understand and know your options before you buy.
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Call (720) 200-4025 now or email us to find out how our attorneys can help wither your Long Term Care Insurance Issues.
