Did you know about 70% of people older than age 65 will, at some point, need long-term care (LTC)? Unfortunately, most of those people won’t realize they need this care until it’s too expensive or near-impossible for them to buy a good LTC policy outright. Even if you’re financially secure, paying out-of-pocket for medical care can be a burden on you and your heirs. If you’re contemplating buying an LTC policy, you might want to consider adding riders to life insurance or annuities as an alternative. Both of these policies can offer lucrative benefits that will cover your LTC needs without cutting into your assets.
Preparing for the High Cost of Long-Term Care
Private LTC only has limited coverage under most health insurance policies, which is why many need to add additional coverage to pay for these costs. Most turn to LTC policies, but these also have their limitations. As of late, annual premium increases have exceeded 30-50%, placing an enormous burden on clients.
LTC policies are more expensive the older you are when you buy them. This is simply a matter of risk assessment. The older you are, the more likely you’ll need LTC, which makes you a higher risk. Buying an LTC policy early during your prime medically insurable years can be a better option.
Many LTC policies limit what you can spend the funds on to direct medical costs, not accounting for the need for basic non-medical caretaking services. Another more flexible option can be an LTC provision on an existing insurance policy, like life insurance or an annuity.
Using Life Insurance as a Long-Term Care Option
If your life insurance policy is of the newer variety, like a universal life policy, you might be able to leverage your future death benefit. In this case, you’d add an LTC provision onto the policy, which would increase the premium, though usually not significantly.
When you need LTC, you can draw funds from the death benefit of the policy to pay for those expenses. The benefit of this is that it’s not on a use-it-or-lose-it basis, meaning that if you never use the LTC benefit, your heirs get the full amount of your death benefit.
However, you could run the risk of running out your death benefit, such as in the case of a long-term, expensive illness. That is why it is important to purchase adequate insurance. In addition, having other accounts to draw on such as an annuity may be helpful.
Annuitizing Long-Term Care with a Fixed Annuity
A fixed annuity is an insurance policy designed to guard you from outliving your money. That’s generally what they’re designed for but some use them for the LTC benefit as well.
Annuity LTC riders can do everything from covering you for nursing home stays and home healthcare expenses to doubling the annuity payout in the event of a long-term illness. Deferring the annuity until you need LTC will allow the funds to grow longer, ensuring you will be able to enjoy a higher income, which allows you to more fully benefit from an income doubler or multiplier.
The annuity can work well in the case of very long-term needs because annuities can be purchased to pay out for the rest of your life. In the case of a deferred fixed annuity, the funds will grow to keep up with inflation, helping you better prepare for the rising costs of healthcare.
In either case, with LTC from an annuity or life insurance policy, benefits can often be paid tax free with some limitations. Please ask us about the various approaches to protecting yourself with a LTC-type benefit and the advantages and disadvantages of each approach.
Depending on your age and the cost of premiums, a combination of annuities and life insurance, or a simple LTC policy, might help you avoid the risks of LTC expenses. Call us today at 800-DIE-RICH to plan out your LTC needs in advance.
