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Continuing Care Retirement Communities and Long-Term Care Insurance

By Thomas "Greg" Darden, CLTC | July 3, 2020

Community care retirement communities, also known as CCRCs (or life-plan communities), are a long-term care option for older people for whom it is essential to stay in the same place as they transition through the various phases of the aging process. It is a form of ‘aging in place.’

An Introduction to CCRCs

These communities – of which more than 2,000 exist in the U.S. today – might be apartments, townhomes or cottages that share common areas and numerous amenities, plus assisted living and skilled nursing facilities.

They offer customizable services to fit the individual’s needs at each point in their life. This ensures that the best level of care is available whenever needed, including emergency medical help.

But the most significant benefit is that you have lifetime access to a continuum of care. The first phase is that of independent living, where you can handle activities of everyday life, but you might need help from time to time.

In the next phase, in assisted living, you can receive custodial care (for eating, bathing, dressing, toileting, continence, and transferring from one spot to another – such as from a bed to a chair). Next would be skilled nursing care, where you can receive 24-hour nursing, rehabilitation, and custodial care.

CCRCs can be a good option for people who want to reduce their responsibilities for maintaining a home while also living in a community that offers a variety of services and social/wellness activities within the same ‘campus,’ and that provides access to long-term care in a familiar environment if and when it is needed.

Costs and Types of CCRC Contracts

If you are considering a CCRC, the contracts are complex and should undergo a review by an elder law attorney with expertise in this area. It’s also vital to do due diligence of the finances and management of the community itself, as CCRCs are the most expensive retirement option, and you want the certainty of the operation’s sustainability.

Regarding costs, CCRCs require substantial entry fees, ranging from $100,000 to $1 million. The ongoing monthly fees typically range from $2,000 to $6,000 and can be subject to inflation-based increases. The entry fee guarantees a bed in assisted living or a skilled nursing facility but does not usually include home care for those in independent living. Some contracts may refund part or all of the entry fee upon the death of the resident.

As for contracts, the different CCRC contracts follow a typical structure. CCRCs have the benefit of being regulated at the state level, and the ‘mileage can vary.’ Let’s look at the common types of contracts:

  • Type A, called ‘Extensive’ or ‘Life Care’ contracts, are the most expensive option. They offer a full range of services, including unlimited prepaid long-term care. This contract transfers all the financial risk of care to the CCRC.
  • Type B, called ‘Modified’ contracts, are less expensive than Type A. They include limited long-term care services. They are subsidized or free for a certain number of days, and, beyond that, the resident covers the cost at market rates. Some of the financial risk of care is transferred to the CCRC.
  • Type C, called ‘Fee for Service’ contracts, offer a lower entry fee and monthly fee. They guarantee access to care, but the resident pays market rates for all care received. In this case, the resident assumes all financial risk of care.
  • Type D, called ‘Rental Agreement’ contracts, have a lower or no entry fee. The resident pays for all care. They are a more affordable option for people who don’t have an asset they can dedicate to the entry fee.
  • ‘Equity’ contracts provide a slightly different model. Instead of paying an entry fee, the resident can buy a share of their residential unit. As you move to higher levels of care, the CCRC sells your unit, and you receive your initial investment back unless it is sold for a loss.

Planning Considerations: How CCRC Contracts Work with Long-Term Care Benefits

Long-term car insurance (LTCi) covers the cost of care. In turn, CCRCs guarantee access to care and cover all, some, or none of the cost of care, depending on the type of contract you sign.

As you assess the interaction between the CCRC contract and the LTCi you have, several key elements should be considered:

  • The benefits payment model of your LTCi. If it’s ‘reimbursement,’ it only pays for billed expenses that qualify for payment under your policy, up to the maximum benefit. Also, care must be from a licensed health care provider. If it is ‘cash indemnity,’ it pays cash up to the full benefit, and that cash can be spent at the insured’s full discretion. Care can come from unlicensed providers as long as the insured is certified by their doctor as needing long-term care, and a plan of care is in place and approved by the insurer.
  • The type of CCRC contract, where you determine how much long-term care is included in the contract.
  • A cost/benefits analysis of the CCRC contract versus the LTCi.
  • The status of your care decision: Do you already own LTCi when considering a CCRC? Or are you planning for LTCi now while you anticipate entering a CCRC in the future? The risk is that – if you delay purchasing the insurance but assume you will go into a CCRC – if you suffer an impairment you could become ineligible for both.

Let’s examine how different types of CCRC contracts interact with LTCi.

A Type A contract: You may not need the insurance policy at all. This might be a good option for someone who might not be insurable. Buying an LTCi policy with ‘reimbursement’ has limited value, since no services will be billed for reimbursement. Depending on the CCRC contract and your LTCi policy, part of your monthly fee assessed for prepaid long-term care might be reimbursable. A ‘cash indemnity’ benefit could be of more value, for example, if you want home care services while in independent living, or if you want an upgrade to a private bed if you enter a skilled nursing facility.

A Type B contract: Your LTCi policy benefits, whether ‘reimbursement’ or ‘cash indemnity,’ can be used to cover long-term care expenses that exceed the amount offered under the contract. It is crucial to make sure you can get LTCi coverage before entering this type of contract. ‘Cash indemnity’ provides the most flexibility and may be preferred.

Type C and Type D contracts: Your LTCi policy benefits, whether ‘reimbursement’ or ‘cash indemnity,’ can be used to cover long-term care expenses. You want to be sure you can get LTCi coverage before entering this type of contract. If you are not insurable, a Type A or Type B contract may be a better choice.

For seniors with the financial means – or with supportive LTCi coverage – a CCRC offers you the ideal environment in which to ‘age in place.’ However, because of the cost and complexity of contracts, you will want to do – or ask an expert to do – extensive due diligence to be sure you are getting precisely what you want.

Live Long and Prosper: Have a Plan for Care

By Thomas "Greg" Darden, CLTC | May 1, 2020

Planning, planning, planning.  It seems like that’s all we hear about these days.  Career planning, family planning, financial planning, retirement planning.  Then what?  What do we plan for after planning for retirement?

We also need to plan for living a long life.  As a population we are living longer.  A 65-year-old today can expect to live another 17 years, but many are living far longer than that.  The fastest growing age group is the group over age 85.  When the social security system was initially put into place, it was set up as a safety net for those few people who lived much beyond age 65.  Now there are people who are drawing from the Social Security system for almost as many years as they paid into it.

So how do we plan for living a long life?  Obviously, we need to have our finances in order.  The greatest fear of many retirees is outliving their assets.  Many are dependent on investment income to supplement Social Security earnings to meet their day-to-day expenses.  Most people are reluctant to tap into their principal, wanting to preserve it at all costs.  They want to preserve the income stream, but they also want to preserve the principal, so they have something to leave to their children, grandchildren, or favorite charity.

One of the greatest risks to a portfolio is that of an extended care need.  And the likelihood of needing care increases with increased age.  The older we are, the more likely we are to develop conditions that may require us to have assistance with day-to-day activities such as bathing, dressing, getting in and out of a chair.  The need for assistance can be due to things like severe arthritis, emphysema, cardiac problems, or even an accident.  It may also be due to conditions such as multiple sclerosis or Parkinson’s.  It may simply be due to growing old and frailer or developing dementia.  Of those over age 85, fifty percent have some level of dementia.  Remember, this is the fastest growing age group in our country!

Planning for a long life must include planning for disability or incapacity.  Have you given this any thought?  If you were unable to care for yourself, what would you do?  Would your spouse be able to care for you?  What if your spouse were to pass away before you?  What if your spouse was the one who needed care?  Would you be able, physically, emotionally, and financially to provide the necessary care?

Have you spoken with your children about your preferences if you need care?  Many of us have living wills and other documents that may say we don’t want to be kept alive by artificial means.  The chronic conditions that were mentioned earlier—arthritis, cardiac problems, emphysema, Alzheimer’s disease, do not require life support.  These are not situations where you are given the choice of “pulling the plug.”  You could live with these conditions for many years, still enjoying many activities and relationships while needing assistance on a daily basis.

I hear people say, “My children will take care of me.”  What does that mean in your family?  Does that mean that they will move in with you or have you move in with them and their family?  Does that mean that they will provide hands-on care such as bathing you?  Or does it mean that they will provide for you financially?

As part of your planning, it’s important first of all to acknowledge that living a long life is a near certainty; that the longer we live the more likely we are to need some type of day-to-day assistance.  Medicare, Medicaid, and the Veteran’s Administration do not provide for the type of care that we are most likely to need.  The care most likely to be needed is having someone come into our own home to provide assistance.

It’s then important to acknowledge that an extended care situation will have a tremendous impact on your family.  What would the impact be on your child’s life if they become responsible for your care twenty-four hours a day?  Think about the impact even if they provide care only eight hours a day.  What does that do to their family time?  To their career?  To their other responsibilities and commitments?  What would it mean to them financially?

I firmly believe that spouses and children will do all they can to provide care, but it can be very difficult.  They will do the right thing.  But having a plan in place can help them in this new role as caregiver.

So, for your planning, make your loved ones aware of your care preferences.  Do you want to stay in your area if you need care or would you prefer to move to another part of the country where you have family or friends?  Would you want to move in with your children or, like many, do you not want to be a “burden” to your family members?  Do you want to receive care at home for as long as possible or would you prefer to be in a setting such as an assisted living facility where there are other people around, there is help as needed, and there are a variety of social activities planned?

If care is needed, how will you pay for it?   Have you considered investigating long-term care insurance as an option to provide the financing for extended care services?  Many people are unaware that long term care policies will pay for a caregiver to come into your home to provide care there.  Many people are also unaware that they can insure for a portion of the cost if they feel that they can afford to pay the remaining portion of the cost of care.

Do a favor for yourself and for your loved ones.  Have a plan for the eventuality of needing care.  Let people know your desires.  Set up the financial resources.  Let your family know what resources are available either in the form of assets or insurance to pay for your care.  Then, enjoy the peace of mind that comes from good planning and get out there and enjoy the years that you’ve been given!

Long-Term Care Insurance Part 2: How Do I Fund It?

By Thomas "Greg" Darden, CLTC | March 6, 2020

This is the second part of a 2-part series on long-term care insurance where we look at its funding sources. In Part 1 we looked at what long-term care is, what it should cover, the care setting, and the cost of care.

What are my possible funding sources?

One thing is certain: long-term care (LTC) requires cash flow. If you are faced with paying for LTC, you will need a reliable source of monthly cash flow to cover those expenses. Depending on your level of income, this could affect your lifestyle and other financial commitments you’ve made.

It’s reasonable to consider LTC insurance to fund the cost of home and community care. You might look into reducing your discretionary or “fun” spending for early expenses. Eventually, you might have to tap into assets in the worse-case scenario of needing nursing home care.

As you consider your funding options for LTC, you might look at the following sources:

Your secure lifetime income.

This is cash flow that is guaranteed to last as long as you live. It typically is in the form of:

      • Social Security.
      • Pension, if you have one.
      • Income annuity, if you have one.

Excess cash flow.

These are funds you might be saving after covering your required expenses. Those required expenses are what we call your “minimum dignity floor” and are comprised of food, utilities, transportation, housing and health care.



What types do you have? Where are they located? How easily can they be converted to cash and what would be the tax implications of doing so?

      • Liquid assets, which could include:
        • Bank and brokerage accounts.
        • Retirement accounts.
        • Life insurance cash value.
      • Illiquid assets, which could be difficult to convert to cash when needed for LTC, and could include:
        • Real estate (home equity can be a source of cash flow through a reverse mortgage, for example).
        • Business ownership (this equity could be more difficult to tap).

A critical question is what the projected tax consequences would be of liquidating any of the various types of assets you have.

What are my options for funding my LTC plan?

The options available to you would depend on your unique circumstances.

Fully self-funding. Some people have enough financial resources to fully self-fund LTC should they need it. Even so, it’s important to consider that – unlike insurance – this option provides no leverage. (Insurance creates leverage through pooling of risk among thousands of policyholders.) Nor does this option offer any care coordination services from a team of professionals. Instead, that burden is placed on your family. And, depending on the type of assets allocated and how they’re positioned, the funding source you are envisioning could be subject to market volatility.

Partially self-funding. You could utilize LTC insurance to cover home and community care for the period of time you select. If an inflation benefit is attached, it can keep up with the rising costs of care. You would want to include in your plan how you could self-fund the shortage for a worst-case scenario, if that were necessary.

Fully funding the worst-case scenario through LTC insurance. Using insurance to fund the scenario of an extended stay in a nursing home or memory-care facility is the most expensive option. On one hand, it might be appropriate for some situations. On the other, it is potentially not the most effective approach. It could unnecessarily constrain your lifestyle spending and/or the growth of your assets.

Following are examples of different options you might think about for funding LTC insurance policies to cover part or all of your potential LTC needs. Depending on your circumstances, these strategies can be effective.

A pay-as-you-go policy. Reserve a portion of your liquid assets which you invest moderately conservatively. Use the earnings to pay annual premiums for a traditional LTC insurance policy. This type of policy is much like your homeowner’s insurance – it remains in force as long as you pay the premium. Policies of this type provide the most “bang for your buck” in terms of benefits. The key is to make sure the policy remains affordable, so you can keep it in force each year.

A hybrid insurance policy. Reposition a portion of your liquid assets to purchase an LTC “hybrid” insurance policy via a single premium or limited-time premium payment. It provides fewer benefits per dollar, but offers a death benefit for your heirs of the entire amount you paid into the policy to the extent the LTC benefits were unused. There is also a return-of-premium benefit if you decide to cancel the policy.

Such a strategy can be good for those who have $1 million or more in liquid assets, with a substantial portion in bank or brokerage accounts that can be repositioned with minimal tax impact. It is less attractive for those with most of their assets in retirement accounts. Since the IRS eyes tapping these as taxable ordinary income, liquidating retirement accounts would increase your adjusted gross income and could push you into a higher tax bracket.

In summary, if and how you choose to cover your potential needs for long-term care are very personal decisions. However, those decisions can affect more than just the care you receive. They can also affect those closest to you.

The best decisions will factor in the rest of your retirement plan. Consult your financial advisor if you would like help exploring the impact of each option.

Long-Term Care Insurance Part 1: How Much Do I Need?

By Thomas "Greg" Darden, CLTC | February 21, 2020

Every type of insurance you buy is a roll of the dice. Will you ever need it? And if you do, will it give you the coverage you thought you were buying? Long-term care (LTC) insurance is a classic case where you might ask these questions.

The answers you get are typically just statistics. While they might give you a general sense of the LTC usage landscape, they cannot predict if you’ll ever need the care and – if you do – what type of care you’ll need and for how long.

In that vacuum, it becomes more important to focus on the emotional, financial, and physical consequences to your friends and family, should you have to call on them for this type of help. You’ll also want to recognize the severe financial impact an extended LTC event could have on your retirement and estate plans. How willing are you to curtail the “fun spending” you programmed into your retirement plans? And is guaranteeing a legacy for your family one of your concerns?

So, in light of those questions, what is the ultimate role of LTC insurance? It can mitigate these risks by providing a guaranteed stream of monthly income for a specific period. And, by providing leverage, it means significantly more dollars of benefit per premium dollar spent. This leverage is difficult to match in a market investment over the long term.

What Type of Care Should I Cover?

Over the years, the need for care can present itself in two ways: related to getting older or triggered by a long-term event.

Aging Expenses: The Cost of Getting Older

As we age, we find we start needing help with some of the day-to-day tasks we were always able to do for ourselves. These could be cooking, cleaning, shopping, gardening, home-and-yard maintenance, and driving.

In the industry, these are often referred to as “instrumental activities of daily living” or IADLs. While your inability to handle these tasks might be very frustrating for you, they don’t necessarily qualify you for LTC insurance benefits. You will most likely have to count on the goodwill of friends and family or pay someone to do them for you.

Our recommended approach is to look ahead to your 70s, 80s, and 90s. Try to estimate how much additional income you might need to cover such expenditures during those years. You will have to assess your needs based on your lifestyle and where you live. You can then research what the relevant services cost today in your area.

As part of your planning, you will have identified a “fun spending” budget. You will want to factor these expenses as a reduction of that budget during the later years of your retirement (what we call the “SlowGo” and “NoGo” years). If that is not an option, you can determine the amount of additional money you would need to reserve today to ensure you can cover these future expenses.

A Long-Term Care Event

A long-term care event is not arbitrarily defined. The Health Insurance Portability and Accountability Act (HIPAA) of 1966 established the standards (sometimes referred to as “triggers”) for determining if you qualify to receive benefits under an LTC insurance policy. Those are:

  • Inability to perform, for at least 90 days, as certified by a licensed health care practitioner, any two (2) of six (6) of the basic self-care routines that get you through the day. These are referred to as “Activities of Daily Living” or ADLs. They include eating, bathing, dressing, toileting, continence, and transferring (for example, from bed to chair). Assistance with ADLs is considered “custodial care.”
  • Cognitive impairment, meaning your memory or reasoning is compromised to the extent that you can no longer interact safely with your environment.

The U.S. Department of Health and Human Services (HHS) says that about 70% of people aged 65 or older will need long-term support and services at some time in their lives. This figure includes two groups:

  • Those who only need help with IADLs as described under “Aging expenses” above, or maybe just one ADL, but otherwise do not qualify for LTC benefits, and
  • Those who do qualify for LTC benefits (accounting for about 52%) based on the triggers described above.

The majority of those who need LTC will need it for three years or less. In our planning, we consider this length of care to be “typical.” A typical need has a higher likelihood of happening and is relatively less costly. Planning for this type of event would be a reasonable approach if you are healthy and have no family history of chronic disease or dementia.

On the other hand, an LTC event expected to last longer than three years is considered “atypical.” An atypical need has a lower likelihood of happening, but is relatively more costly and can be financially devastating. Such a need often results from Alzheimer’s, Parkinson’s or other forms of dementia, a stroke, or a serious accident.

The progression is that a person will be incapacitated to an extent, but their decline will be gradual. They will require a much longer period of care. As such, these types of events can run up to six to eight years, or even longer in some cases.

What is the Care Setting?

You will want to think about where you choose to receive care and from whom. Also, who will coordinate your care going forward?

LTC insurance used to be thought of as “nursing home insurance.” Today it is a blend of care types and settings in a somewhat predictable progression. It starts in the home and transitions through other settings which might include assisted living and a skilled nursing facility (or nursing home).

Most care though starts and ends in the home, with the family providing care in the early days of a long-term care event. You will want to consider who would be able to provide custodial care for you, whether they would be willing to, and whether you would want them to do so.

Today, LTC policies cover care in the following settings:

In your home or community:

    • Homemaker Services provide help in your home with light housekeeping, meals, cleaning, laundry, or running errands.
    • Home Health Aides provide part-time skilled nursing care in your home as ordered by your physician for a specific condition.
    • Adult Day Care is a community-based service that provides social and support services in a safe and stimulating environment

In facilities:

    • An Assisted Living Facility combines residential living with common areas and activities, providing individualized personal care, which may include skilled nursing care.
    • Continuing Care Retirement Communities combine residential living with multiple levels of care within one community, from independent living to assisted living and skilled nursing care.
    • Nursing Homes are residential facilities with full-service skilled nursing care available 24/7.

Home and community-based care services, as well as assisted living, are typically about half the cost of a private bed in a nursing home.

What is the Cost of Care?

Each year, Genworth Financial publishes the national median cost of care. It includes state and regional costs for each of the six care settings described above. It also looks back five years at the growth rate of these costs.

This information can be a valuable starting point for you to estimate what you can expect to pay for LTC services today, then in the future, based on an inflation rate that you select.

What Next?

Now you have the basics of long-term care insurance: what it is, what it should cover, the care settings, and the cost of care. Next, we will examine a vital aspect of long-term care: its funding sources. If you have any questions about integrating long-term care into your retirement plan, feel free to reach out so we can help.

Long-Term Care Insurance: Four Key Features

By Thomas "Greg" Darden, CLTC | January 17, 2020

Your approach to funding a long-term care (LTC) plan may include insurance. While all LTC insurance policies are required by law to contain specific standard provisions, four features play a fundamental role when designing a long-term care policy that fits your needs.

Each of these features affects the amount of premium you will pay. They are:

  • Benefit amount,
  • Benefit period,
  • Elimination period, and
  • Inflation benefit.

Let’s look at how each one of them influences your policy.

The Benefit Amount

The benefit amount is either a daily or monthly maximum amount that the policy will pay once you file a claim. Benefits may be paid under a reimbursement or cash indemnity model.

The reimbursement model works similarly to your health insurance, under which a provider (or you) submits a bill to the insurance company. The insurer either pays the provider or reimburses you. The insurance company or the provider bills you for any uncovered expenses.

The advantages include:

  • higher benefit than cash indemnity,
  • an audit trail, and
  • unused balances staying in the “pool” of benefits.

One disadvantage is that the benefits can only be used to pay for covered services, as defined in the contract.

The cash indemnity model entails you receiving a check each month for the full amount of the benefit, regardless of your costs in a given month.

Advantages include:

  • being able to pay for informal care (such as that received from family caregivers) or non-traditional services, and
  • “future-proofing,” by having funds available to pay for possible new care technologies in the future that aren’t explicitly defined in a reimbursement contract.

Disadvantages include the potential for fraud or squandering of funds. Most important, under the cash indemnity model, you receive a lower amount of benefit for the premium paid.

The Benefit Period

The benefit period is the time over which benefits will be paid, typically 2-10 years.

Think of your total available benefits as a pool of money based on the amount of the periodic benefit times the period stated in the policy. For example, if you have selected a maximum monthly benefit of $6,000 and a benefit period of three years, your initial total pool of money for LTC expenses is $216,000 ($6,000 x 12 x 3).

The Elimination Period

The elimination period is essentially a waiting period during which you have to pay the expenses for care out of your pocket, similar to your health insurance deductible. The range is typically 0 days to 1 year, and the most common is 90 days. Some policies have a 0-day elimination period for home care services and 90 days for facilities.

Decreasing or increasing this period will impact your premium. That decision calls for input from you: How long would you be able to cover the expenses (most typically starting with home care) before the insurance company pays? What will the cost of that care be 20 or 30 years out?

Companies credit you for ‘days’ differently. Most policies credit each calendar day that passes once you go on claim. Others use a service day, which means you have to receive a covered service that day. Still other policies give you seven days for every one day service is received.

It’s commonly assumed, partly incorrectly, that Medicare will pay for the first 100 days of long-term care. Medicare does not pay for custodial care. However, it will pay for up to 100 days of skilled nursing care if that care follows a 3-day hospital stay, you are transferred to a skilled nursing facility within 30 days of leaving the hospital, and you require skilled, rehabilitative services.

The Inflation Benefit

The inflation benefit feature allows your LTC benefits to keep up with the rising cost of care by offering 1-5%, simple or compound. At least one insurance carrier offers an option to start with a low inflation rate and gradually increase it over time, without having to re-qualify based on your health.

The effect is to lower the premium in the early years, which is very important since it’s likelier you will use the benefits several years from now.

Because this feature has a significant impact on your premium, it should be carefully considered. The determining factors are your age, your budget for the premium, and the extent to which you can fund part of your care.

Wrapping Up

Three questions should be answered before designing and funding your LTC plan:

  • How much benefit do you think you’ll need, and for how long?
  • What type of care do you want to cover, and where you want to receive that care?
  • What are your available funding sources for the premium and the portion of care you might self-fund?

LTC carriers include flexibility in their policy offerings to accommodate your individual situation and preferences. That flexibility lets you design the optimal policy for you.

To help you in that process, we will cover those considerations in greater detail in future articles.

Possible Consequences of Long-Term Care

By Thomas "Greg" Darden, CLTC | November 22, 2019

The decision to be prepared for long-term care is often influenced by looking at the wrong issue. Many people view long-term care through the lens of risk, thinking that they might fall in that part of the population that reaches the end of their lives and never needs it. What colors their decision is the thought that it might turn out to be unnecessary to have factored it into your long-term planning. But there is another way to think about it, and that is in the context of consequences: if you think you will live long and possibly need help at some point, have you thought about how it will affect your family or friends who might have to care for you? Let’s look at the possible consequences of long-term care after a quick review.

A Review of Long-Term Care

Long-term care (LTC), sometimes referred to as ‘extended care,’ is a continuum of care types and settings, usually starting in the home and transitioning through other settings, which might include assisted living and skilled nursing facilities, also known as nursing homes.

The need for LTC will be triggered by some form of LTC event, which could be a chronic physical or cognitive impairment. A chronic physical impairment will limit your ability to perform basic daily routines known as “Activities of Daily Living.” These include transferring (for example, bed to chair), toileting, eating, bathing, dressing, and continence. A cognitive impairment, such as Alzheimer’s disease, is one that compromises your safety through its effects on memory, orientation (as to person, place, or time), reasoning, and judgment.

As a physical or cognitive impairment begins to compromise a person’s safety, typically a spouse, partner, or child will start helping the person with the basic routines to get through the day safely. Such help is known as custodial care and is not paid for by your health insurance or by Medicare. The cost of any care required going forward, including in facilities, will have to be borne by you or by your loved ones.

The exception is that Medicaid will ultimately cover care in a nursing home. However, you and your loved ones will still bear a burden because you will have to spend down your assets and income to minimal levels. And it’s important to realize that you will have no control over your care in that setting.

The Consequences of a Long-Term Care Event

Even the earliest form of care – day-to-day custodial care – will gradually have significant physical, emotional, and financial impacts on the caregiver and family. It can:

  • Alter the lifestyle of the caregiver.
  • Be both physically and emotionally demanding, taking a toll on a caregiver’s health, sometimes causing them to develop chronic illnesses themselves.
  • Affect their job performance, as they might have to take time off from work or reduce hours, as well as their income.
  • Force them to curtail or postpone plans they’ve made for their own life (such as career and education).
  • Impact their finances since they might pay for some of the day-to-day expenses.
  • Affect women disproportionately, as they make up the majority of caregivers and may be juggling a job with the care of their own families.
  • Risk creating conflict and resentment within the family if someone is providing most of the care (a dynamic that can be exacerbated by the geographic dispersion of families).
  • Have a potentially devastating financial impact on an otherwise well-planned retirement due to the ever-escalating costs of LTC.

A closer look at the impact of LTC costs on retirement shows that money that you had planned for desired spending (travel, hobbies, helping children/grandchildren with education, charitable giving, and other wishes) might have to be redirected to pay for care.

You might have to tap assets that you have otherwise preserved for income generation to fund your retirement. Depleting those assets can compromise your ability to maintain enough cash flow to fund your planned spending throughout retirement. And the impact may well extend beyond you to your spouse, who is also counting on that well-planned retirement.

In short, the possible consequences of long-term care can be formidable. But having a plan to fund it can alleviate the personal and financial effects that providing custodial care has on a family. And that, in turn, allows them to focus more on managing that care, rather than being the sole providers of it. By reducing stress on your family, you will enable them to direct their energy where it belongs: towards giving you the ongoing emotional support you need.

Long-Term Care Insurance: Traditional and Asset-Based

By Thomas "Greg" Darden, CLTC | September 27, 2019

Traditional and Asset-Based LTC Insurance

Why are we talking about Traditional and Asset-Based Long-Term Care Insurance?  We would all like to think we’re going to take a nap one afternoon, far in the future, and not wake up. We won’t be sick, and we won’t need care. However, statistics tell us otherwise. The U.S. Department of Health and Human Services (HHS) tells us that 70% of Americans turning 65 now can expect to need and use long-term care (LTC).

While the average duration of care is three years, the degree of need is highly unpredictable – paid care could be required for many years and cost hundreds of thousands of dollars.

For a better idea of LTC costs, Genworth’s 2018 Cost of Care Survey (https://www.genworth.com/aging-and-you/finances/cost-of-care.html)  provides national, state and regional costs for long-term care, which can vary dramatically from state to state. The 2019 national median costs are listed below:

  • Semi-private room in a nursing home: $252 per day or $7,664 per month
  • Private room in a nursing home: $283 per day or $8,616 per month
  • One-bedroom unit in an assisted living facility: $136 per day or $4,120 per month
  • Home Health Aide services: $142 per day
  • Homemaker (licensed companion) services: $136 per day
  • Adult day health care services: $74 per day

Who Needs Long-Term Care Insurance?

High net worth individuals can generally afford to cover their long-term care needs out of pocket, though they may choose to insure part of the risk. Modest-income individuals may assume such care is unaffordable, so financial preparation does not enter their mind. Their default plan will be to rely on Medicaid.

The most vulnerable economic segment is everyone in between.

As part of our retirement planning approach, we encourage our clients to think about the costs of aging and how they want to plan for a possible need for LTC. A funding approach to LTC will often include some form of insurance. So, let’s take a closer look at the two most common types of LTC Insurance: Traditional and Asset-Based.

Traditional Long-Term Care Policies

Traditional long-term care insurance is pay-as-you-go, much like a homeowner or auto policy. You pay a premium (typically ongoing) and receive a monthly benefit for a specified or unlimited period.

The advantages of traditional policies include:

  • Lowest out-of-pocket cost;
  • Most benefit for your dollar;
  • Premium is deductible as a medical expense up to IRS limits for individuals who itemize;
  • Additional tax deduction advantages are available to business owners;
  • A portion of the premium can be paid from a Health Savings Account (HSA);
  • Benefits received are tax-free;
  • Some policies offer a shared-care feature that typically allows one spouse who exhausts their benefit to use some of the other spouse’s; and
  • Some policies offer a ‘joint waiver of premium’ feature suspends premium payments for both spouses when one goes on claim.
  • Depending on the state in which you reside, a traditional policy might qualify for the federal-state partnership program. Under this program, you can exclude from Medicaid “asset spend-down” the amount of your assets equal to the total amount of long-term care benefits paid to you.

Disadvantages include:

  • Harder to qualify for, due to strict underwriting requirements;
  • Premiums are not guaranteed and could increase;
  • Use it or lose it – no death benefit or refund of premium if the policy is canceled; and
  • No cash value.

Asset-Based Long-Term Care Policies

Asset-based policies are also referred to as ‘hybrid’ or ‘linked-benefit’ policies. These policies are a combination of life insurance and long-term care benefit.

First, the life insurance benefit (or cash value) is accelerated to cover LTC. Once exhausted, LTC benefits continue through a continuation of benefits rider in the contract. Funding can come from repositioning existing available assets (for example, cash from CDs, savings, or brokerage accounts).

The advantages of asset-based policies include:

  • Flexible payment options (single, multiple and limited payments);
  • A portion of the premium can be paid from a Health Savings Account (HSA);
  • Flexible funding options, including using existing cash values in life insurance or annuities through a ‘1035’ exchange, as well as the option to roll over a lump sum from a retirement account to pay premiums over time, thereby minimizing the tax impact;
  • The premium is guaranteed never to increase;
  • If the policy is canceled without having used LTC benefits, there is a refund of premium, typically subject to a vesting schedule;
  • Guaranteed death benefit: if benefits are never used, your heirs will receive a tax-free death benefit equal to at least the amount of money you paid into the policy, less any withdrawals for LTC, and if benefits are exhausted, a minimal residual death benefit is typically paid;
  • As with a traditional policy, the benefits are tax-free; and
  • Underwriting generally is less restrictive than for a traditional policy.

Disadvantages include:

  • More money paid into the policy initially and in the early years;
  • Premiums are generally not tax-deductible; and
  • Relatively less benefit for your dollar.

When considering whether LTC insurance should be a part of your plan, it’s also important not to underestimate the value of a carrier’s ability to offer care coordination and case management. Having these services available if and when you need to file for LTC benefits will greatly relieve stress on your family.

Lastly, when considering Traditional and Asset-Based policies, key features can be tuned to arrive at the best fit for your needs and budget. These include the amount of monthly benefit, how that benefit will be paid (reimbursement or cash indemnity), the benefit period, the elimination period (the initial period during which you have to cover the costs – essentially a deductible) and benefit inflation. Let us help you put together LTC protection that considers you, your loved ones and your heirs.