What Happens If I Live a Long Life and Need Long Term Care?

As we enjoy time with our loved ones this holiday season, AAFCPAs Wealth Management encourages readers to proactively explore an important family question: if I live a long life and need long term care, who will provide that care and how will it impact them? Unfortunately, many only consider this financial and emotional burden after a close friend or family member is impacted by chronic illness.

Very high-income, and high-net-worth individuals may have the flexibility to pay for long-term care expenses out of pocket. Individuals without significant financial assets may be able to rely on Medicaid-provided long-term care. Long-term care insurance may be appropriate for those individuals who fall somewhere in the middle—those who don’t have enough to self-pay but have too much to qualify for public assistance.

In order to determine the most appropriate risk management solution, AAFCPAs Wealth Advisors review each client’s unique risk attributes, including: family history longevity, medical history, resources available for providing care, and who this will impact financially and emotionally. We quantify these considerations to determine what options make the most sense.

Does Insurance Make Sense?

In many cases, our clients make the decision to purchase long-term care insurance based on their desire to avoid causing an emotional and/or financial burden on a loved one. Friends or family members will be compelled to provide care for you if you become chronically ill and it will significantly impact their life.

In most cases, AAFCPAs Wealth Management advises clients to consider long-term care insurance as you approach retirement and are still relatively healthy. The longer you wait, the more expensive private insurance premium will be. There is also the risk that you or a member of your family develop a “pre-existing condition,” which will affect your premium, coverage for care related to that condition, or insurability.

What does Long-Term Care Insurance cover?

Long-term care insurance covers the gap in care generally not covered by health insurance, Medicare, or Medicaid. Long-Term care insurance specifically covers a person who becomes chronically ill. Chronic Illness is defined as the inability to perform two of the six activities of daily living (ADLs) such as dressing, bathing, eating, toileting, continence, transferring (getting in and out of a bed or chair), and walking or a cognitive impairment expected to last longer than 90 days.  The most prevalent reason people need care is for safety related to short-term memory loss.

Long-term care insurance can cover home care, assisted living, adult daycare, respite care, hospice care, nursing home, Alzheimer’s facilities, and home modification to accommodate disabilities. Again, in order to qualify for coverage, the insured must be chronically ill, not acutely ill.  A short-term need would be covered by private insurance or Medicare.

What Types of Long-Term Care Policies are Available?

Plan design and contract types vary and will determine who may be funded to provide care, where care may be provided, and how the benefit will be distributed. For example, not all plans allow family members to be reimbursed as care providers.

There are generally three forms of long-term care insurance:

  1. Traditional long-term care insurance may be purchased by paying a premium for a pool of benefits. If you trigger a claim, you receive benefits in the form of reimbursements for care received. You must first pay for the care and then submit receipts to be verified. These plans are capped by a daily or monthly amount. The benefits are received tax free. If the benefits are not used, you forfeit the premium.
  2. Hybrid plans provide a life insurance component so if you never trigger the benefits, the plan provides a return of the premium and/or a death benefit. These plans generally provide benefits in the form of reimbursements similar to traditional plans. However, there are a few plans that provide “indemnity” benefits, i.e. cash benefits that are not tied to receipts or a reimbursement process.  If they are “indemnity” benefits, they are tax-free up to the IRS limit.
  3. Life insurance with a long-term care rider allows you to take a percentage of the face value of your life insurance toward your care. The remaining, un-used value will be distributed as life insurance upon your death. LTC benefits are typically distributed in tax-free cash installments based on a pool of benefits, again up to the tax-free IRS limit. These plans are generally more flexible for receiving care in different venues, such as in-home care, and may also be used to pay family members who assist in your care.

If insurance is appropriate for your situation, AAFCPAs Wealth Management advises you to look for the most flexible plan at the right price point. The goal is to avoid being over-insured while getting good value and flexibility.

Insurance, including long-term care insurance, should always be aligned with your individual, family, or business goals as well as your unique risk preference. AAFCPAs has extensive experience providing insight and analysis of insurance portfolios, helping to ensure proper alignment of insurance offerings with your unique goals.

Our mission is to provide financial peace of mind—for the life you have and the life you envision.

If you have any questions about this or any other aspect of your personal financial plan, please contact: Carmen Grinkis, PhD, CLTC, CFP® at 774.512.4061, cgrinkis@nullwealth.aafcpa.com; or your AAFCPAs Wealth Advisor.

About the Author

Carmen Grinkis
Carmen is a Wealth Advisor and Co-Managing Partner of AAF Wealth Management, specializing in comprehensive financial planning solutions for individuals, families, business owners, nonprofits & foundations. Carmen is a licensed investment adviser and a CERTIFIED FINANCIAL PLANNER™ (CFP®) professional. She also has a PhD in Clinical Psychology and fifteen years’ experience as a practicing psychologist. This perspective benefits clients because much of financial planning is about life planning.