November is Long-Term Care Awareness Month, and as confusing as annuities can be in the investment world, traditional long-term care insurance (LTCI) and hybrid policies (whole life insurance or annuities with a long-term care benefit) are equally confusing in the insurance world.
First, let’s discuss what LTCI is and isn’t. LTCI is not nursing home insurance. In my opinion, it is retirement/lifestyle insurance. Why bother planning every last detail of your retirement if you aren’t going to plan for the one thing that can easily derail all of those plans?
With that said, LTCI isn’t for everyone either. If you don’t have a lot of assets or you don’t have the income to pay for the premiums, then this type of insurance may not be a good option for you. Likewise, if you have a large amount of assets, then you can potentially fund the cost of long-term care yourself. But do you want to do this? According to the 2019 Genworth Cost of Care Survey, the annual costs of different levels of care for the Atlantic City area are as follows:
• Home health aide — $56,056
• Adult day health care — $25,025
• Assisted living facility — $62,400
• Nursing home care — $112,603 for a semi-private room or $127,568 for a private room
So how do these costs compare to LTCI? For a traditional policy, a 60-year-old New Jersey couple could expect to pay about $3,000 per year for a $6,750/month ($81,000/year) benefit lasting three years. In total, that’s a potential benefit of $486,000 for both husband and wife. By comparison, a hybrid policy, providing a $6,750/month benefit and a death benefit of $225,000 if the long-term care rider is never used, would cost $15,415 in annual premiums. Unlike the traditional policy, the long-term care benefit may be unlimited for a hybrid policy. This could easily equate to well over $1 million in potential benefits. Also, premiums for both types of policies are deductible up to $3,900 year for ages 61-70 and $4,870 for age 71 and older.
The next question everyone asks is Will I need long-term care? The answer is likely yes. According to the U.S. Department of Health and Human Services, 7 out of 10 people will need long-term care in their lifetime. Assistance with any two of the six activities of daily living, which include eating, bathing, toileting, transferring, continence, or any cognitive impairment, qualifies as long-term care.
When it comes to purchasing a policy, there are many options to consider such as
• Waiting period — How long before the insurance pays for care and is it retroactive?
• Length of benefit — How long will the policy pay for care? As mentioned previously, a hybrid policy has an unlimited benefit.
• Inflation protection — Should the benefit increase with inflation?
• Shared care — Can a couple share benefits instead of having to separate benefit periods?
Lastly, Medicaid currently allows you to keep only $2,000 of assets in order to qualify, and even if you have taken steps to shelter assets, which can be both hard and undesirable, you cannot shelter income. All pension and Social Security income can be taken first. Again, LTCI isn’t for everyone, but to not consider it as part of your own retirement plan is poor planning in my opinion.
T. Eric Reich, CIMA, CFP, CLU, ChFC is president and founder of Reich Asset Management and can be reached at 609-486-5073 or firstname.lastname@example.org.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.