4 Alternative Strategies for Funding Long-Term Care
Did you know that about half of all Americans turning 65 today will require long-term care (LTC) in their later years? According to the Genworth Cost of Care Survey 2022, the daily median cost of an in-home health aide is $159.00 and the daily median cost of in-home health services, such as homemaker services and custodial care, is $156.00.1
As you can imagine, finding sustainable funding for LTC needs can be a challenge. Beyond traditional Long Term Care Insurance (which can often be expensive and difficult to qualify for unless you are still young and in good health), there are several funding options available. Here’s some of the most common:
Although among the least-used insurance products for long-term care (LTC) benefits, annuity/LTC products deliver a lifetime income stream that increases if this type of care is needed.
A long-term care annuity is a deferred annuity - either fixed or variable - that includes a long-term care rider which can be added to your annuity policy. When you need long-term care, you can receive payments from the annuity monthly or as a lump sum. You can also use the money for long-term care expenses that you may have already paid out of pocket.
To activate the long-term care rider and begin receiving benefits from the annuity, you generally have to meet medical standards that demonstrate the need for long-term care. For example, if you are diagnosed with a chronic or terminal illness, such as Alzheimer’s disease or another degenerative disease that requires ongoing round-the-clock care, either in-home or in a nursing facility.2
Long-term care annuities do require a lump sum investment up front, so they are best for those who also want the steady monthly income an annuity provides and protection against outliving their assets, or for those who may benefit from simplified health underwriting due to the inability to qualify for regular LTC insurance coverage.
2.) Life Insurance
Hybrid life insurance policies that include a long-term care benefit have become more popular in recent years because they alleviate the concern about paying for coverage you may never use. Unlike traditional "use-it-or-lose-it" long-term care policies, hybrid policies can be used to pay for long-term care expenses if needed, and will still pay a death benefit to the beneficiaries when the insured individual dies. Premiums may be fixed for life and not subject to increase, as stand-alone policy premiums can be. And medical underwriting may be less rigorous than when qualifying for a stand-alone long-term care policy.
There are many life insurance products available today that include some type of long-term care benefit, including true hybrid life-LTC policies, long-term care riders that can be added to a regular whole life insurance policy, critical or chronic illness riders (often known as Accelerated Death Benefit Riders), and more, so be sure you understand the various options and their features and benefits before purchasing a policy.
Existing whole, term, or universal life insurance policies can also be converted into an LTC policy through what is called a 1035 Exchange3. During this conversion, the policy ownership is transferred to an entity that acts as a benefits administrator, who takes on the responsibility of premium payments. The caveats are, you must qualify health-wise for the new policy, and you must have built up enough cash value in the existing policy to fund the new LTC policy.4
Life insurance policies are a good option for paying for long-term care for those who also want to leave a death benefit to their heirs, who want flexibility in how and when they use the LTC benefit, or who are not certain they will need long-term care, and don't want to waste money on an unused traditional LTC policy. You should consult with a qualified financial professional to fully understand your options before choosing a hybrid policy to meet your needs.
3.) Qualify for Medicaid
Under the reality that many Americans are simply living longer, this strategy becomes more of a necessity the closer you are to running out of money. The government assesses income and asset levels when deciding who qualifies, so once your total assets are low enough, Medicaid will kick in. The rules for Medicaid can vary by state, so you will want to understand the rules for your particular state before you apply.
However, it should be noted that private insurance will likely provide a better quality of life. This option is also not ideal for those who wish to leave a legacy to their loved ones, as you will be required to spend essentially all of your assets and deplete your retirement savings entirely before you qualify.
4.) VA Benefits
If you’re a veteran or a spouse of a veteran, many different benefits/compensation programs are available through Veterans Affairs. Two of the most popular LTC services are Housebound and Aid and Attendance. However, the application process can be complex and lengthy, so be sure to consult with a VA benefits expert before you start.
The Bottom Line
While in some cases Medicaid may be your only option, planning in advance for future long-term care needs gives you the option to purchase life insurance, annuity, or long-term care products that can allow you to protect your assets from the high costs of long-term care, avoid dependency, and maintain your living standards as you age.
Want to discuss your options for to prepare for your potential future long-term care needs? Contact our office to speak with a qualified long-term care specialist.
This document is for educational purposes only and should not be construed as legal or tax advice. One should consult a legal or tax professional regarding their own personal situation. Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products offered by an insurance company. They do not refer in any way to securities or investment advisory products. Insurance policy applications are vetted through an underwriting process set forth by the issuing insurance company. Some applications may not be accepted based upon adverse underwriting results. Death benefit payouts are based upon the claims paying ability of the issuing insurance company. The firm providing this document is not affiliated with the Social Security Administration or any other government entity.