Navigating Long-Term Care: Understanding Insurance Solutions and Asset Protection

A lot of people think they will never need skilled nursing care and if they do that Medicare will take care of it and do not need to worry. This is often due to people not realizing the difference between Medicare and Medicaid. Medicare is a federal health insurance program that we pay into and receive coverage at age 65. Medicaid is federal and state joint public assistance healthcare program for the poor. They are the largest payor of long-term care services in the country.[1]

Medicare will pay for skilled nursing care services if you have met certain criteria. If you had a recent hospital stay for at least 3 days and admitted to a Medicare certified facility within 30 days of your prior hospital stay to received skilled care. Once these criteria are met Medicare pays 100% for the first 20 days, then day 21 to 100 you are responsible up to $170.50 per day and Medicare pays the rest. After day 100 you are responsible 100% and expected to spend down your assets before Medicaid will pay for skilled nursing care services.

We are living longer and by 2030 7 out of 10 people will need long term care services at some point in their life.[2] The chances are high that you will need long term care services and be forced to spend down your retirement savings and sell your home to qualify for Medicaid. This could impact your spouse’s lifestyle and retirement. The legacy that you hoped to leave your children could be gone. Fortunately, with planning early you can mitigate the impact of having a long-term care event and preserve your assets.

There are insurance solutions that can protect your assets or leverage the assets that you do have set aside for a long-term care event. These solutions will provide a benefit if two more of the activities of daily living cannot be performed or there is a serious cognitive impairment. Typically, they have a 90-day elimination period.

Traditional Long-Term Care Insurance

Provides a low-cost benefit to cover long term care services. The benefit period is typically 2 to 5 years and a 3% to 5% cost of living adjustment rider can be added too. The downside of this type of solution is that if you do not use it you lose it.

Hybrid or Asset Based Solutions

These have become more popular in recent years. Unlike traditional long-term care insurance these have a cash value and a death benefit if the long-term care benefits are never used. They are considered “asset based” or “hybrid”, because they are combination of a permanent life insurance policy or annuity with a qualified long-term care policy. They can provide a life-time benefit and a 3% to 5% cost of living adjustment rider can be added too. People who have set aside assets to “self-insure” can have those assets leveraged up to provide a larger benefit. Despite the life insurance and annuity portion this product is long term care focused. The death benefit and cash value are secondary benefits. The majority and in some cases all their premium dollars can be returned if the policy owner decides to surrender the contract. The downside is that there is a high premium outlay because it is paid as single premium or up to a 10 pay.

Permanent Life Insurance with a Qualified Long-Term Care Rider

This is like the “asset based” or “hybrid” solution because it utilizes a permanent life insurance policy. The difference is that the primary purpose of these policies is the life insurance death benefit and the qualified long-term care rider is a secondary benefit. This is the reverse in a matter of speaking to the “asset based” or “hybrid solution”. The qualified long-term care rider accelerates typically between 2% to 4% of the death benefit each month until the death benefit is exhausted, or the insured dies and the residual death benefit is paid out to the beneficiary. The advantage of this solution is being able to take care of two needs with one product, but that is also can be a disadvantage. It can leave the beneficiary with no or a reduced life insurance benefit.

Life Insurance with a Chronic Illness Rider

These are available on most permanent policies and some term policies. How the benefit is paid out varies greatly. There are some that operate very similar to a qualified long term care rider where between 2% to 4% of the death benefit is accelerated each month until the death benefit is exhausted or the insured dies and the residual death benefit is paid out to the beneficiary. There are others that use a lien or discounting method to determine the benefit available to be accelerated for a chronic illness. The monthly accelerated types are like the qualified LTC rider and have the same advantages and disadvantages. The advantage of the lien or discounted method is that there is no monthly charges and the rider is not morbidity underwritten. The disadvantage is that the cost of the rider is on the back end leaving the cost and benefit amount unknown until time of claim. This can leave the beneficiary with no or a reduced death benefit.

All these solutions have their advantages and disadvantages and can be combined to mitigate them. None of them can take care of all long-term care needs 100%. However, if they take care of 80% or even 50% it is better than not having anything.

This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information. Annuities are long-term, tax-deferred investment vehicles designed for retirement purposes. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Withdrawals made prior to age 59 ½ are subject to

10% IRS penalty tax. Surrender charges apply.

Securities offered through LPL Financial, Member FINRA/SIPC. Investment Advice offered through WCG Wealth Advisors, LLC, a Registered Investment Advisor. WCG Wealth Advisors, LLC and The Wealth Consulting Group are separate entities from LPL Financial. 1 CRS analysis of National Health Expenditure Account data obtained from the Centers for Medicare & Medicaid Services, Office of the Actuary, prepared November 2017. 1 2019 U.S Department of Health and Human Services (www.longtermcare.govopens in new window)