Long-Term Care: What? Why? Newest Solution

What is it?

Long-term care (LTC) is a variety of services which help meet both the medical and non-medical needs of people with a chronic illness or disability who cannot care for themselves for long periods of time. Most tax-qualified LTC policies are activated once the policyholder needs assistance with at least two of the six activities of daily living (ADL5) or with a cognitive impairment from Alzheimer’s disease or dementia. These standard ADLs are toileting, bathing, dressing, eating, transferring from one point to another, and continence.

LTC insurance is a policy that pays for skilled, intermediate, and custodial care in one’s own home, adult daycare setting, assisted-living facility, or nursing home if one is unable to independently manage the basic activities of daily living. It gives one the choice of where one will receive care and how to schedule that care.

Why Does One Need It?

One large misconception is that Medicare or a health plan will pay for this need. Medicare will cover some health care costs for retirees, but only what is considered “medically necessary.” It was not designed to pay for extended LTC and should not be counted on as a resource to meet this need. Medicaid is the Federal-State health insurance program designed to pay for nursing home care for those who are very poor. Medicaid dictates the type, amount, and location of care and can only be used in limited cases to pay for an assisted living I residential care facility or home health care.

Care services can be provided by health care professionals and may take place in the home, in the community, in an assisted living facility, or in a nursing home. The average monthly cost for a private nursing home or home healthcare aides is around $7,500 – $8,000. While families still provide the bulk of care services, family dynamics have changed dramatically over the past few years. Women, who previously dominated the care-giving role, are in the workforce in record numbers and may not able to provide full-time care. There are also fewer children in households today than in previous generations, more divorces, and more single people living alone. Therefore, the number of family caregivers will be even smaller in the future than it is today.

If the care is for an extended period of time, could one’s children handle the stress on themselves or other members of their family? Would someone want your children to have to pay for your care knowing they may be sacrificing their retirement plans or their grandchildren’s college funds. In fact, for many, the sole reason individuals purchase LTC insurance, is to avoid becoming a financial or emotional burden to their children.

So when you think about it, planning for LTC is very important to one’s overall financial strategy.
It can help:

  • Protect one’s retirement savings
  • Provide control over where one receives care
  • One’s ability to pay for higher quality care
  • Relieve family and friends from major care responsibilities
  • Minimize work absenteeism and lost productivity for care-giversHere is a list of factors that will make LTC an even larger burden in the future than it is these days:
  • People are living longer. The population segment of the ‘very old”, older than age 85, is the fastest-growing age group in the country. The older the person, the more likely the need for LTC and the more likely a need for care which lasts years. Over 50% of the age group over 85 is receiving LTC.
  • The older the person the more likely the risk of onset of dementia. The Alzheimer’s Association estimates about 46% of people over the age of 85 have dementia or Alzheimer’s.
  • The number of overweight and obese people in the United States continues to increase. Obesity is a major contributor to disability and poor health in the elderly. Estimates are that the effects of obesity will increase nursing home enrollments by an additional 15% to 20% by the year 2020.
  • The ranks of the elderly are growing larger. The population of elderly over 65 will double from about 37 million people today to about 77 million people in 2035, 30 years from now. Based on current estimates of the rate of LTC this means that in 30 years about 17 million elderly Americans will be receiving LTC.
  • It is estimated that 6 out of 10 people will need LTC sometime during their lifetime.
  • With a large and growing number of single person households there is no spouse and often no children to provide care. About 40% of the population is single.
  • The birthrate is going down and families are getting smaller. The combination of fewer children, the increasing number of single person households and a growing number of elderly will eventually create a situation where there are more people needing care than there are available family caregivers.
  • Out of approximately 116 million women in this country who could be employed in the workforce about 60% or 69 million are employed. With women being the traditional caregivers, this means only about 40% of traditional caregivers are at home and able to provide long term care for loved ones without having to juggle a work schedule as well.
  • Medical science improvements have been preventing early sudden deaths which often results in a prolonged life with impaired health and a higher potential need for LTC.
  • Government programs are already stretched thin for LTC services and will experience even greater stress on available funds in the future. Also, the government does not seem inclined to provide a national LTC insurance plan.

The Newest Solution

LTC can come in a variety of “flavors”:
1. Individual Policy
2. Group Policy
3. Combined with an annuity
4. Combined with a life insurance policy

One hesitation that potential purchasers of LTC have is what if they never have to put a claim through their policy and use the funds. Several large insurers recognized this dilemma and have created policies that combine the benefits of life insurance and LTC insurance. Although each policy has its own features, basically the idea is that if you don’t use the money in the policy for LTC costs, your heirs will receive a death benefit so your money isn’t wasted.

One has the comfort knowing that their premium dollars will not be wasted if the coverage is not used. This new product combines the best features of life insurance and LTC into one design. It is often sold as a universal life contract that requires a single premium and that funds an accelerated death benefit rider to pay out LTC benefits if needed. However, premium payments can also be setup like any other life insurance contract.

A single premium payment into this universal life product combines three features in one product: 1. Tax-deferred cash accumulation (asset protection)
2. Life insurance with an income tax-free death benefit
3. Income tax-free LTC benefit

Once the premium is inside the universal life insurance policy, the account value earns an interest rate (typically at least 4%) on a tax-deferred basis, building up a cash reserve that can be used tax free to cover nursing or home-care costs. Any money that is not spent on nursing care benefits will be distributed to your heirs as an income tax-free death benefit under Internal Revenue Code Section 101 (a)(1).

Keep in mind that as an acceleration of the death benefit, the LTC rider payout will reduce both the death benefit and cash values. So it will be important that one’s life insurance needs continue to be met even if the rider pays out in full. There is no guarantee that the rider will cover the entire cost for all of the insured’s LTC as these vary with the needs of each insured. With these combined policies, the consumer has the guarantee of LTC benefits or, if no care is needed, the promise of insurance benefits to themselves and their beneficiaries.

Source: Thomas Day at longtermcarelink.net (modified)

For additional information contact:
Logan W. Simios
Managing Director, Benefits Division
T 847-818-7804
lsimios@jkrug.com