Huge Future Retirement Expense is Lurking
Chances are more than 50/50 that you will need help getting along later in life. The cost is prohibitive and someone (not Medicare) will pay the bills. Home health care is expensive and nursing home care is REALLY EXPENSIVE. The tab could be a few hundred thousand dollars!
“Failing to Plan is Planning to Fail”
68%: The probability that an individual over age 65 will become cognitively impaired or unable to complete at least two “activities of daily living”–including dressing, bathing, or eating–over his or her lifetime.
$73,000: Median annual rate, nursing-home care in U.S.
12 million: The number of Americans expected to need long-term care in 2020.
$113,640: The maximum amount of assets a healthy spouse can retain for the other spouse to be eligible for long-term care benefits provided by Medicaid. MEDICARE DOES NOT PROVIDE FOR LONG-TERM CARE NEEDS
79: Average age upon admittance to a nursing home.
904 days (2.5 years): Average length of stay for current nursing-home residents, 1999. More LTC statistics
Q. Who pays for the care?
A. Most likely you do.
Medicare: In order to receive 30 days of benefit from Medicare, beneficiaries need to have a stayed in a hospital for three days just prior to entering a nursing home. This seldom occurs. Medicare does not provide a home health care benefit.
Self- Insured: Roll the dice and hope you never need care. While the odds may not be in your favor, many people are doing this, some consciously others unconsciously. At what potential expense? Depending on how long and at what cost, needing care could devastate your financial legacy. For some people, it is worth the risk.
Long-Term Care Insurance: For those that would rather share the risk with an insurance policy, they have another set of concerns. The cost of long-term care insurance is not cheap!
Those that bought these policies a while back are finding out that the rates are not locked in. Existing policyholders of almost every long-term-care insurer has raised rates at least once, and many are on their second round of price hikes.
Policyholders were stunned when insurer John Hancock announced in September that it would ask state regulators for permission to boost premiums on many of its long-term-care policies by an average of 40%. For many of the insured, the proposed rate hike would come on top of a 2008 increase of 13% to 18%.
Then in October, Genworth, another major player in the long-term-care arena, announced that it would request an 18% rate increase for most policyholders who purchased insurance between 1994 and 2001 (or, in a few states, between 1994 and 2004), affecting about one-fourth of its policyholders. MetLife, another industry giant, announced in November that it would no longer sell new individual or group long-term-care insurance policies but would continue to service existing ones. CNA Insurance did the same thing a while back.
Why are insurers raising rates? A John Hancock study found that the number of claims, the length of claims and the use of benefits from 1990 to 2010 were much higher than the company had expected — particularly the open-ended expense of providing lifetime benefits to an aging population with an increasingly long life expectancy.
These pricing increases have made it doubly hard to purchase this type of insurance especially when there may be more price increases and buyers may never make a claim on the insurance.
A Potentially Better Way to Insure for This Potential Need
USE IT OR PASS IT TO HEIRS
For people who are interested in passing money to their heirs, take a look at creating a new bucket of money that serves a dual purpose. The bucket I am referring to is created by the purchase of life insurance. This means the premium you take from your portfolio (one pocket) is used to create a future asset in the form of a death benefit (other pocket). Life insurance has long been the asset of choice to pass to heirs in part because of its guarantees and the fact that the death benefit is income tax-free.
The new twist is the addition of a long-term care rider that allows the insured to take an Accelerated Death Benefit if they qualify for long-term care. This means if the insured qualifies for care they can take an advance on their life insurance death benefit.
For example, I had a 72-year-old widow purchase a $400,000 life insurance policy and pay roughly $13,000 per year. If she lives twenty years, she would have paid $260,000 in premiums and her three children would receive the $400,000 life insurance proceeds tax-free at her death. That is a pretty good return for a guaranteed future value.
If she qualifies for LTC any time along the way she can take up to 2% ($400,000 x 2%) or $8,000 per month from her policy. There are no restrictions as to how she spends the money once she qualifies. The monthly benefit would last at least 50 months. Whatever she does not use will be passed on to her children.
USE IT OR PASS IT TO HEIRS
I think this is a pretty nifty retirement planning strategy for people who have the means to do this.
Let me know if you have questions about the best options might be for you or your parent.
Please feel free to share this with others.
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