By Tom Strangstalien – WisMed Assure Insurance Advisor
We all probably know someone whose estate has been wiped out by the exorbitant cost of long term care. During my years of serving the financial services industry, I have witnessed many of these unfortunate events, many times at the “crisis management” stage. To arrive at this stage, it is quite apparent the family’s long-term care plan was to do nothing to address the potential catastrophic financial issue.
When creating your life’s financial goals and plan, don’t overlook this piece of the puzzle; it can potentially devastate everything you have worked for your entire life. Today, there are several innovative solutions you can use to build a bomb-proof bunker for your financial world.
According to Genworth’s Cost of Care Survey, 69% of people turning age 65, approximately 7 out of 10, will need some form of long term care during their lifetime. This includes nursing home care, assisted living, home health care, or a combination thereof. In the State of Wisconsin, as illustrated by the Administration for Community Living, the cost of semi-private care in a nursing home is $8334 per month and private care is $9346 per month. (You can see these figures at longtermcare.acl.gov)
You are looking at potentially $100,000 per year! The average length of stay for men in a facility is 2.2 years, while women average 3.7 years. And, 20% of those who are age 65 or older, stay longer than five years. At the least, this can severely erode a family’s estate and, at worst, it can completely blow it up.
Times have changed… for the better!
In years past, the only solutions to protect one’s estate from this life event was to self-insure, purchase long term care insurance protection, or to roll the dice and gamble. It can be very intelligent to purchase long term care insurance, particularly when younger, to bomb proof your future financial well-being. The argument contrary to this type of planning has always been that you could end up spending the premium dollars over your lifetime and never need the policy protection (use it or lose it). Today, there are several additional options available, negating the risk of spending substantial dollars, and never using them.
Exponentially gaining in popularity are “Hybrid LTC Policies”; combining the benefits of a life insurance policy and long-term care protection. Simply stated, some or all of the life insurance benefit can be paid out for qualifying long term care costs. If the policy is not used, generally speaking, the life insurance value is paid out as a tax-free benefit to the beneficiaries upon death. Regardless, this planning offers protection to the estate, and keeps the dollars in the estate in a tax efficient manner.
Another alternative to the traditional long-term care insurance policy is “Asset-Based LTC”. This planning involves setting dollars aside in an annuity contract. The contract provides two “buckets” of money; one on deposit accumulating growth, and the other providing protection for long term care. Only one bucket of money can be used. Should you desire or need to use the assets for income, the funds will be available per the structure of the contract. However, if a form of long term care is needed, the long-term care bucket will provide a respectfully larger pool of funds that can be tapped. For the money you set aside as the “last” money to be used in your life, this can offer an attractive way to leverage your assets.
The last strategy I will outline is purchasing a fixed or indexed annuity contract with an optional LTC rider. Thanks to the media, annuities have been incurring a bad reputation. However, in my experience many of the cases involving annuities are simply a case of someone using the wrong tool in the proverbial tool box. Each financial tool has its purpose and its place. By using an annuity with a long-term care rider to provide a stream of income, you will receive consistent guaranteed payments over a period of time. Should you qualify for long term care, these payments will be increased; many times doubled to cover the increased costs to the family budget. In addition, this type of planning involves minimal medical underwriting.
In my opinion as an advisor with many years of experience, your long-term care plan should never be not to plan. Even if you do nothing and roll the dice, you have the comfort that you did indeed explore the options available to address the risk. As your Financial Partner for Life, we are here to help you navigate through all of the protection options available to you. We are here to help you make the very best choices to bomb-proof your financial shelter. You will sleep at night, knowing you have a fortified plan, and will not fall victim to “crisis management”.