Why Long-Term Care Coverage is Important: Many people believe that medical insurance policies and Medicare or Medicaid will pay for long-term care expenses. Medicare does pay limited benefits for rehabilitation and recovery at a skilled nursing facility immediately following a stay at a hospital. However, it does not pay for the more common situation where health declines slowly over time resulting in the need for assistance with daily living activities, without a preceding stay at a hospital. Most Medical insurance policies do not pay for custodial long-term care expenses. Medicaid assistance is not based upon a need for "custodial care" which supports activities of daily living like dressing, bathing, and using the bathroom. Eligibility for Medicaid assistance is based upon financial criteria. The basic rule for MassHealth long-term care eligibility is that the applicant, whether single or married, can have only $2,000 in countable assets in their name. If the applicant is married and the spouse plans to continue in the community, the spouse is allowed to keep a maximum of $109,560 in their name. If an applicant applies to MassHealth with more assets than this, they will be required to spend down those assets to the applicable limit, usually on healthcare costs.
The Historical Objections to Traditional Long-Term Care Policies:
From the consumer’s perspective, the most common objections to purchase are:
- It is too expensive;
- Premiums are not guaranteed; and
- If you don't use it, the premium dollars are wasted.
The insurance industry has addressed objections 2 and 3 by combining life insurance protection and long-term care benefits into one product. In some cases the combination may take the form of a Long-Term Care Rider which is added to a life insurance policy. In other cases, the combination of benefits is automatic and no rider is necessary. A typical example of the latter case is Lincoln MoneyGuard.
Irrespective of the product design, the advantages of combining both life insurance and long-term care coverage in a single policy are:
- The third objection (“use it or lose it”) is removed. If you need long-term care coverage you may access a portion of the death benefit to pay for long-term care costs, subject to terms that vary from company to company. If you do not access the full death benefit amount, the balance goes to your designated beneficiary (spouse, children, or other persons designated by you) at death. It is possible to surrender a policy you no longer want or need and receive a return of all premiums paid, or more. Here again, this feature varies from carrier to carrier. The bottom line is that in the new generation of “linked” coverage there is no “use it or lose it” scenario.
- Policy premiums may be structured on a guaranteed premium basis. This design eliminates the second objection since premiums are guaranteed not to increase.
Is Long-Term Care Coverage Too Expensive?
Life insurance has a cost, and so does long-term care coverage. The objection that long-term care coverage is too expensive is a relative one.
Life insurance is important if someone will suffer financially when you die.
Long-term care expenses may have a significant adverse impact on family income.
Addressing the potential financial impact of long-term care expenses, especially during retirement years, should be a part of everyone’s retirement planning. Whether long-term care insurance is the right choice, can only be answered in relation to whatever alternate strategy a person may have to address the threat of long-term care expenses on his or her retirement assets.
Of course, you can self-insure in either case, but what is the cost of doing so? The objection to cost can only be addressed on a fact specific basis, and by analyzing (1) the need for life insurance, (2) the existing life insurance in place, if any, (3) the cost of care should long-term care assistance be needed, and (4) the impact of long-term care costs on retirement assets.
If you would like more information on this subject, or have a client who might benefit from a discussion about it, please contact Barry Koslow at bkoslow@mkaplanners.com or (781) 939-6050.
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