Long-term care insurance (LTCI) - part 2

(continued from July 4 issue of the Loop)

Who should purchase LTCI?

During the “golden years,” when income typically declines, the purchase of LTCI should be carefully considered. People with significant discretionary income and substantial resources to protect for spouses, children, and other loved ones should seriously consider purchasing LTCI. Individuals with modest resources (e.g., less than $50,000 net worth) may find the premiums unaffordable, and may qualify for Medicaid by spending down their assets and/or engaging in a little Medicaid planning.

How much coverage is enough?

Insurance protects against an event that might happen in the future. Therefore, buying enough protection is important, but affordability must also be considered. In terms of cost, you need to consider the amount of the daily benefit you want to purchase and also the length of the benefit period.

Daily benefit – Most policies will let you choose your amount of coverage, typically running anywhere from $40 to $150 or more per day. Of course, the greater the daily benefit and the longer the benefit period, the more the policy will cost. Also, note that the cost of nursing home care varies greatly from one metropolitan area to another, so you need to know where you’ll be living out the remainder of your years. Certainly, it wouldn’t make sense to purchase a policy with a daily benefit of $40 if the average daily cost of nursing homes in your area is $250 per day – unless, of course, you have substantial resources and plan to use some of your own income to pay for care. Consumers should generally buy enough coverage to cover 50 to 100 percent of nursing home costs. If you don’t plan on using your own income to supplement, you should buy enough insurance to cover 100 percent of the nursing home costs.

Length of benefit period – When purchasing LTCI, you’ll be asked to select a benefit period. Benefit periods generally range from one to six years, with some policies offering a lifetime benefit. You’ll want to choose the longest benefit period you can afford. If you can’t afford a lifetime benefit, consider choosing a benefit period that coordinates with the look-back period for Medicaid (five years).

How do you compare policies and providers?

Unfortunately, LTCI policies are not standardized. Provisions contained in policies vary greatly, and premiums charged vary as well. Therefore, you should compare policies to obtain the best amount and combination of benefits for your premium dollars.

To compare policies, you should obtain sample policies and “Outlines of Coverage” from each carrier you are considering. The Outline of Coverage summarizes the policy’s benefits and highlights the policy’s important features. You need to read the policies carefully, ensuring that you understand each provision. There are a number of factors you should be concerned about, such as inflation protection, a full range of care (including home health care), exclusions for pre-existing conditions, and the amount of the daily benefit provided.

To compare providers, you should check out the financial strength of the companies by reviewing their A. M. Best Company’s ratings along with the opinions of other rating services. You can also review the company’s financial statements.

What are the tax ramifications?

If you purchase a “qualified” LTCI policy, part (or all) of the premiums you pay pursuant to the contract may be deductible on your federal income tax return. LTCI polices issued after January 1, 1997, must meet certain federal standards to be considered qualified. However, LTCI policies issued prior to January 1, 1997, that met the long-term care insurance requirements of the state in which the contract was issued are automatically considered qualified.

Article courtesy of Forefield.Securities offered through NPB Financial Group, LLC.

A Registered Investment Advisor/Broker-Dealer Member FINRA, MSRB, and SIPC

Please call me to find out more information, Jennifer Williams, President J. Williams Personal Financial Planning: 413 S. Curry St, Tehachapi, California Office Phone 661-822-7517 Office Email: [email protected] Jennifer is a Registered Financial Consultant. She has over 20 years of experience in the industry.