Life insurance companies have become more competitive in recent years for policies issued on people over age 70. Good health is still a major consideration for low premiums, but policies have been redesigned to provide more death benefit and less cash value. Some term policies and certain universal life permanent policies are designed to provide a guaranteed death benefit up to age 95 with a guaranteed premium and no cash value at all. This design generally results in more death benefit for each premium dollar. Also, policies designed for couples — second-to-die policies — can provide a significant amount of insurance for a one-time single premium even if one of the partners is in very poor health.
An important concept to consider is that single premium life policies with no cash value and purchased for estate planning purposes, many years in advance of applying for Medicaid, can be a valuable planning tool if the need for Medicaid arises. Medicaid does not apply the death benefit of a life insurance policy to the asset spend down rule. But the cash value of any policy that has more than $1,500 in cash will count towards the asset test and could disqualify a Medicaid applicant. As an example, a person could have $1 million of life insurance with cash value less than $1,500 and it would not prevent that person from receiving Medicaid. However, cash value of more than $1,500 in this example will apply toward the asset test. It is important to know, for long term care planning purposes, that people who apply for Medicaid and then transfer assets to a life insurance policy, while they are going through spend down, could be in violation of their state’s Medicaid transfer rules and such an act may disqualify the applicant.
Life insurance can be used as an alternative for funding the cost of long term care. If someone planning for the eventuality of long term care is concerned about losing assets that would normally be passed on to the children or be needed by a surviving spouse, that person can invest a portion of those assets in life insurance and leverage a death benefit payout — sometimes for up to $3.00 in death benefit for every $1.00 in single premium. The death benefit is also income tax-free. A person creating such an estate can then use remaining assets for long term care needs in the future but still be assured that the children or a surviving spouse will receive an inheritance at death through the life insurance. And, as discussed above, if the money runs out and Medicaid has to start picking up the costs, a single premium life insurance policy with less than $1,500 cash value will not disqualify the applicant owning the policy
Another use for life insurance for the elderly is in paying the cost of final expenses such as funeral and burial. A number of companies will issue policies without any health questions for people who may not have very long to live. Most of these policies will provide little or no death benefit in the first two years after issue and so there is some risk, but most companies will also return the premiums paid if death occurs in the first two years.
When it comes to long term care planning, all can agree that it would be best to have some kind of plan for your parents’ or your own care than to have to scramble at the last minute and spend your entire savings.
A 2005 study led by Peter Kemper projected that people turning age 65 at that time would need long-term care for three years on average, and that more than 1 in 20 would spend $100,000 or more of their own money on long-term care.
More families are turning to long-term care insurance policies to cover the gaps.
You should keep a few things in mind when shopping for long-term care insurance:
Don’t buy too much. The benefit on a long-term care insurance policy is generally structured as a fixed daily amount over a certain period up to a cap. You can typically start the clock on the benefit and begin to access the dollars when you have a “long-term care event,” such as breaking a hip or having a stroke, in which doctors expect you to need help with the tasks of daily living for at least 90 days.
You can get a much more affordable policy by structuring a benefit package that also includes time with a home health aide, at $21 an hour nationally by the same survey, or adult day care. In some cases, just 10 to 15 hours of respite care a week can be enough to allow people to remain in their homes.
Don’t wait too long. You’ll save significantly — not just now but likely over the life of the policy — if you buy a policy when you’re under 60 and healthy.
Consider the “restoration of benefits” rider and the other fine print. A good policy should cover several types of care, from adult day care to nursing home care. You should understand exactly what standards you have to meet to trigger the benefits, and it shouldn’t exclude any pre-existing conditions you have. One additional rider is called “restoration of benefits.” Let’s say you fall down the stairs at 72. You can start spending the benefits today for a home health aide. But once you recover, the “restoration of benefits” rider allows you to stop that clock. If you stay well for six months, the pool of dollars is restored as if nothing ever happened.
Top financial professionals use this technique to reposition “safe money” to take care of a risk that is expected to happen to 70% of Americans – getting sick enough to need some help at some point in our lives.
Don’t wait to “Protect Your Wealth from Poor Health”. Take 2 minutes to watch this quick video on long term care planning.
About nine million people over the age of 65 will need long-term care this year, according to Medicare.gov, and that number is expected to rise to 12 million by the year 2020. Fortunately, thanks in part to the increasing demand as the baby boomer generation moves toward retirement, people with long-term care needs have more options today than in years past.
What Is Long-Term Care?
Long-term care is an umbrella term that refers to a wide range of medical and non-medical services for elderly individuals, as well as for those with disabilities or chronic illnesses. In most cases, long-term care helps people meet day-to-day health and personal needs like dressing, eating and bathing.
Long-term care comes in many different forms, including:
-In-home care: People who receive in-home care can continue living at home while getting the help they need from care providers who come and go on a regular basis according to the individual’s needs. Depending on the situation, in-home care may be limited to everyday tasks like bathing and eating, or may include more specialized health care services.
-Assisted living facilities: An assisted living facility is a group housing arrangement that provides on-site services for elderly and disabled individuals. Residents often have their own apartments and live relatively independently with easy access to the care they need.
-Nursing home care: Nursing homes are similar to assisted living facilities in that they provide on-site care to residents, but the level of care provided by nursing homes tends to be far more intensive. Typically, nursing home residents are older individuals who require constant care.
Costs of Long-Term Care
With increased options comes a greater need for careful long term care planning — but, unfortunately, most people are unprepared. According to a survey conducted by Lincoln Financial Group, only 44 percent of Americans have taken steps to plan for their long-term care.
In Pennsylvania, the median cost of in-home care is $19 per hour for homemaker services and $20 per hour for home health aide services, both of which are slightly above the national average. Meanwhile, the median cost of assisted living in Pennsylvania is close to average at $39,015 per year, and the median cost of nursing home care is well above average at $99,280, according to MarketWatch.com.
Although the task of planning and preparing for long-term care may seem overwhelming, there are a wide range of resources and options available to help create a plan that works for your circumstances. To discuss the type of care you want and create a plan for financing it, contact a certified elder lawyer experienced in helping clients plan for their long-term care.