When a person reaches the half-century mark, it is time to start planning the details of a comfortable retirement. One of the most important of these details is providing for your own long-term care.
Hopefully you have been saving for retirement for many years before your 50th birthday. Your savings (and related investments) will be your primary source of funding for retirement income (usually augmented by Social Security, pension income, dividends, etc.), travel and other fun things, “rainy day” needs, your share of health care expenses, long-term care for you and your spouse, and your legacy that helps the kids and grandkids.
Regardless of how wealthy one has become, these expenses are significant. Making sure they are funded in accordance with your desires requires careful planning and discipline. Experts such as your tax adviser, financial planner, investment adviser, and insurance expert are essential to guide you to your goals.
The focus here is on long-term care (called LTC). In last month’s Sorbet we presented an overview of long-term care and the coverage alternatives. Here we will focus on the types of coverage available for purchase.
What are the LTC coverage options?
First on the list is traditional LTC insurance. This coverage is much like other forms of insurance, the customer pays a premium and, if LTC is needed, a specific list of benefits, limitations, and exclusions apply. Many people make this coverage part of their planning and purchase it in their 50s or younger as the premiums are much less at earlier ages. There is a substantial cost associated with waiting until retirement age to purchase this coverage.
Second is a special type of long-term care insurance that is part of a State of California program called the California Partnership for Long-term Care. Much like traditional LTC insurance, only with state mandated benefits; this coverage protects certain assets from “spend-down” in order to qualify for MediCal. This coverage can protect assets for those who need long-term care and will need to rely on MediCal assistance sometime in the future. Like traditional LTC insurance, it is less expensive if purchased earlier in life.
Third is what is known as “asset-based” or “hybrid” LTC coverage. This is a combination of either Life Insurance and LTC Coverage or an Annuity and LTC Coverage. These options can be paid for with premiums over time, a single investment, trading an obsolete life insurance policy, or using “qualified” money such as within an IRA.
The advantage of this option is that the “death benefit” can be used for LTC (much like traditional LTC coverage) but any of it not needed for LTC transfers to beneficiaries upon the passing of the insured. If no long-term care is need, the entire death benefit passes to the heirs.
If the combination is life insurance with LTC coverage, the life insurance can accumulate a cash value, just at does life insurance without the long-term care feature.
Today’s long-term care coverage is much improved over the coverage available decades ago. The companies that provide this protection now have a great deal of experience with long-term care financing. They work well with the providers of care resulting in peace of mind for those who need this care (nearly all of us), and their loved ones.
If you happen to be past the half-century mark, but have loved ones near that age, pass this article to them. You might save them a great deal of time and money later.