Will you and Your Spouse Need Long Term Care as you Age?

The shaken 8 ball says…………………”probably”
According to government statistics if you live to age 65 there is a 70% chance that you will need Long Term Care of some kind after that point.  According to research by the Office of Health and Human Services, the average person turning 65 will incur $138,000 in future LTC services. This could be anything from a family member helping you day to day at home, a nurse professional at home, all the way to full time care needed at a long term care facility.

This is not an easy topic to think about or discuss but with tens of millions of people who will find themselves in that position in the upcoming years it is mandatory to get over the uncomfortable nature of the topic and discuss options.  You basically have 3 options at your disposal:

  1. Do nothing and hope you are in the 30% that needs nothing of the sort or pray that if you are one of the 70% you won’t need “much” care and maybe a family member could help when the time comes
  2. Plan ahead and purchase a long term care insurance policy for you and your spouse and pay monthly premiums that would cover you both (to what degree is very much individual company and policy driven)
  3. Structure your existing assets to create a “hedge” or “cushion” that could pay for long term care or home health care expenses and possibly without any monthly premiums payable. Typically referred to as “Asset based long term care”

The first option is what most people choose and it’s hard to blame them because it’s without a doubt the easiest (currently) decision to make.  Most people decide by not deciding or being properly educated about the other two options that are available.  Surely, you and your spouse will fall into the minority group of 30% or into the “Not too expensive or long” group of people in the 70% majority that will need some type of care; right?

If you are correct with your hope and wish, and both you and your spouse don’t need long term care help in your later years, than you have dodged the proverbial bullet.  If, however, your bet is a loser then you run the real possibility of not receiving the care you need or receiving the care you need but at cost of draining all the assets you have worked so hard to accumulate during your lifetime.  You run the risk of leaving behind little to no estate for your family or cherished causes.

Many people who find themselves needing long term care, but haven’t planned for the possibility, end up attempting to transfer assets out of their names into family member’s names or trusts to appear poor so they can have their care paid for by the government.  This strategy is wrong on many levels.  First there are very specific time tables when those transfers will have had to occur BEFORE you knew you needed long term care (usually years before) and most people fall well short of meeting these time tables.  This will mean you will have to exhaust almost all your assets before any help from Uncle Sam kicks in to help.

If the government is involved and paying for your care, do you think you will get the best care available allowing you to extend your life; in time and in terms of quality of life?  Just look at the VA health system and realize you will likely be getting the same sub-standard care.

Also, I have always wondered why the government should have to pay for someone’s long term care? I am not talking about the truly poor and needy as I think we have enough wealth to provide needed safety nets to that group of people.  I am talking about people who have worked their entire lives and built up assets.  Those assets are meant to be used to make your life better and if you leave money behind to your family that is an added bonus.  We are not supposed to fleece the system because we refused to plan accordingly when we had the means and ability to do so just so we can leave our family behind a chunk of money.  If you want to pay for your care and leave money behind to your family then this will require knowledge and planning.

The second option is to take out long term care insurance policies for you and your spouse.  This can be a great way to plan ahead for the possibility of needing long term care in the future.  These premiums will not be inexpensive but neither is long term care or eventual poverty.  There are many variables to these plans based on the kind of coverage you’re looking to obtain.  The upside is you will have an insurance policy that will pay out monthly to help you and your spouse pay for long term care expenses (make sure you can use the policy for home health care as well as actual long term care facilities) should they occur.  Terms and amounts will vary widely so if this is the way you decide to plan for these expenses find an agent who has much experience and knowledge about these kinds of policies and has access to several of the top carriers in this arena.

The downside of this option is that many people can’t afford the premiums and even if they can afford them, if they never use the policy they don’t get the money back (in almost all cases) just like your car insurance.  If you don’t file a claim on a car they don’t send you back all your premiums because if they did the entire system would become insolvent.  It is very possible that you could pay tens and even hundreds of thousands in premiums and yet never need the coverage.  This is a thought that drives many crazy and causes some not to decide to use this option.

(If you would like more information on this topic visit www.perpetualltc.com for a short video presentation.)

The third option is called “Asset based long term care” and it has several variations.  Let’s talk about the most common use of this strategy.  A person might opt to take a sum of money and open up a specifically designed life insurance policy.  Most of these policies are opened up with a very specific goal of generating a death benefit but that “death benefit” can be accessed during the applicant’s lifetime to pay for long term care expenses.  The applicant put in a certain amount of money (could range from $50,000 to $200,000 per applicant) and buys a life insurance policy on themselves.  Let’s use $50,000 one time single premium into the policy that buys a $200,000 death benefit and that death benefit is guaranteed not to go away after that single premium.

This is not done to have the $50,000 premium actually perform and do anything except generate the bigger death benefit.  However, there will also be cash value generated that can be accessed should the policy owner choose to in the future.  Any loans taken from the policy will reduce the eventual long term care payout.   There is a rider built into this type of policy that allows you to access your death benefit early should you need long term care. (Make sure the policy will allow you to use the benefit for home health care as well as going to a facility)  So in this case you could draw up to $200,000 to pay for long term care expenses.  If you went into a facility this would be enough to pay for about 3 years of care (depending upon where you live and what kind of facility you enter) and if you can stay at home your money would typically last longer assuming it is part time nursing or family members coming in to help you live.

What happens if I live longer than the benefit?  You will then start using other assets or consider putting in more money up front to generate a bigger death benefit.  Maybe $100,000 would generate $350,000 worth of death benefit that could be drawn on later for long term care.  There are also certain policies that might have a “lifetime long term care benefit” after that initial period of coverage is spent you might be able to pay some nominal annual premium on top of the upfront premium already paid years beforehand.  There are many options depending on the company and product chosen.

What happens if I die and never need the long term care benefit?  Simple, this is a life insurance policy so the $200,000 death benefit is paid out tax free to your heirs.  So with that up front premium you either get a higher multiple to use for your eventual long term care or you leave that amount behind for your family.

We hope this article helps shine some light and makes you aware of the options for you and your family. If you would like more information on asset based long term care please visit www.perpetualltc.com for a short video presentation.