About Long-Term Care Insurance (LTC)
- LTC insurance pays when you need help with at least two of the six daily activities that we all do (bathing, dressing, transferring, toileting, continence, eating) but we have to be expected to need that help at least 90 days. It will also pay if we have a cognitive impairment severe enough that we can’t be left alone.
- The odds of needing that type of care once we hit age 65 are 52% for men and 62% for women. The good news is it probably won’t be nursing home care.
- Most care is not in a nursing home (less than 15%). Some people have all their care at home. People who can’t stay home usually move to an assisted living facility. The really nice ones cost $5000 - $8,000 a month, depending on where you live.
- For care that lasts longer than a year, men average 3.8 years and women average 4.7 years. Alzheimer’s and debilitating strokes can last a lot longer.
- Medicare and health insurance will help in the first three months by paying for a rehab center or some home care visits. After three months, the options are:
- Pay with your own money
- Use some type of long-term care insurance
- Go to Medicaid (MediCal in California)
- To get Medicaid to pay, a single person has to spend savings down to about $2,000 in most states. The states combine all the assets of a couple, regardless of who’s name they are in, and the most the healthy spouse can keep this year is about $148,000. The rest of the savings must be spent down to about $2000. A pre-nup doesn’t protect assets for the spouse who doesn’t need care.
- The exception is a Long-Term Care Partnership policy that protects the assets equal to the benefits paid out. You can buy that type of policy in most states, but it has to be a traditional
Types of LTC Insurance Policies
- TRADITIONAL (50% of the sales)
- Works like health insurance – you pay the premium and if you never need care, your premium goes to pay for someone else’s care, just like health insurance, homeowner’s insurance and car insurance. The premium stops when you start receiving benefits. Rates can increase. A couple of companies (National Guardian Life and Thrivent) will let you pay it off in 10 years, and the 10-pay premium for NGL is guaranteed to never increase. These plans are available in the open market. New York Life, Northwestern Mutual and Bankers Life are available only from agents of those companies.
- An inexpensive solution in many states for people with health issues provides one year at home and one year in a facility. This is called short-term care, but it’s potentially two years as a private pay patient. AETNA has the best policy like this.
- HYBRID, aka COMBO, aka LINKED BENEFITS (50% of the sales)
- LTC insurance linked to either life insurance or an annuity to make it possible to return a death benefit to your family if you never need care. Healthier people get better leverage from the life insurance version.
- Premium is guaranteed so you never have to worry about a rate increase.
- These policies require $100K or so to be meaningful. They cost more up front than traditional LTC policies, but most allow you to spread the premium over several years.
- Many products just advance the death benefit but the best ones continue paying for several more years. OneAmerica has an unlimited benefit period and a shared product that makes it less expensive for couples.
- Three companies pay a monthly benefit in 100% cash so you can use the money however you want, including paying family members and other non-licensed caregivers.* [Brighthouse (spinoff from MetLife), Nationwide and Securian (Minnesota Life). The value is no one knows what care will look like in the future….robots, anyone? And you don’t have to submit bills/receipts, etc. to document all of your care. Lincoln Financial’s MoneyGuard Fixed Advantage lets you have half of the monthly benefit in cash.
- Brighthouse has the best deal for 5% compound inflation.
- Like traditional policies, other hybrids pay when claims are filed up to a daily or monthly maximum [OneAmerica, New York Life, Mass Mutual, Thrivent].
- Benefits from all of these combo policies are tax-free when funded with after-tax money.
- Two companies allow you to use money from a retirement plan like a 401(k) or Traditional IRA and pay the income tax over 10 years (OneAmerica) or over five years (GILICO), after which 100% of the benefits are tax-free.
People that have health issues can apply for LTC insurance linked to annuities. There are still some health questions but much easier to get. Three companies offer this (OneAmerica, GILICO (Guaranty Income Life Insurance) and Global Atlantic’s ForeCare). You can roll the cash value over from an old annuity and the LTC benefits pay the gain out tax-free.
The new EquiTrust Bridge product is a fixed index annuity that grows the accumulation value based on the S&P 500 index. However, it has a separate LTC account that is guaranteed. The benefit triggers are the same as LTC insurance (expectation to need help with at least 2 Activities for at least 90 days or severe cognitive impairment) so the benefits are tax-free. The first year premium gets multiplied by a % anywhere from 50% to 325% based on health and age, but no one is turned down. Then that is guaranteed to grow at 2% compound for the earlier of 20 years or going on claim. Plus, a wellness plan is designed for each person and if the person follows it, another 15% will be added to the LTC benefit account.
Whichever kind of policy you buy, be sure to consider inflation. Phyllis Shelton, my go-to person for long-term care insurance expects the cost of care to almost triple in 20 years and quadruple in 30. Buy what you can afford, but whatever the insurance pays is that much that doesn’t come out of your retirement savings.
People who can’t get any kind of LTC insurance can get a fixed index annuity with only one health question which is are you able to do your daily living activities (dressing, bathing, transferring, toileting, continence, eating) today? There are two versions of this:
- Most will pay double the lifetime income for up to five years when people need help with the two daily living activities. After that, the payout goes back to the normal lifetime income for the rest of that person’s life. You have to be in a facility for most of these policies, but five companies offer this for home care as well as for facility care: F&G, SILAC, North American, Integrity Life and Allianz.
- North American’s Secure Horizon Plus pays the LTC account over seven years. If you don’t live that long, your beneficiary gets the rest of the years.
These products are fixed index annuities which means your premium grows based on various stock indices like the S&P 500 but can’t decrease due to market risk because your money isn’t in the market. The fee for the LTC rider can decrease what you put in if the market is down every single year but so far that has never happened. However, the products make sure the LTC account is greater than the cash value.
Phyllis also brought to my attention that some states are gearing up to require workers to have long-term care insurance. For example, beginning in July, 2023, Washington State will require most workers who don’t have their own LTCi policy to contribute 0.58% of their salary into a state program that will provide eligible residents up to $100 a day in LTC benefits. Employees who wish to opt out had to purchase a private policy before November 1, 2021. Most companies stopped selling before that date as they got too many applications to handle before the deadline.
But the lifetime limit on benefits is just $36,500 in today’s dollars, with very small increases. Plus, the state reserves the right to increase the tax to keep the program financially stable. The program is clearly not designed to provide full protection. Keep in mind that right now, daily at-home LTC costs can run around $6,000 a month. That means the lifetime benefits from the Washington state program would cover just six months of care based on today’s costs.
Washington is the first state to enact such a program. But others are moving in the same direction. California has passed legislation to put together a plan and figure out how much payroll tax it will take to fund it. New York, Pennsylvania, and Minnesota also have legislation in process. Other states that seem to be considering it are Alaska, Colorado, Hawaii, Illinois, Michigan, Missouri, North Carolina, Oregon and Utah.
If you live in a state that will be requiring participation in a public LTCi program, please don’t assume it will provide everything you need. As the Washington state program shows, the lifetime benefits can be a lot less than many families will need.
I encourage everyone to carefully consider the value of their own private LTC insurance policy. I think it can be a very smart addition to your retirement security strategy.
If you don’t have an LTC insurance specialist to consult with, check out Phyllis Shelton at www.GotLTCi.com, for I know she and her team will answer any questions you may have and guide you to the best choices for you.
Disclaimer: Suze Orman makes no referral fee or any compensation on any level for any personal recommendations she makes.