Not All Wealthy People Can Afford To Self-Insure

Financial and consumer publications will often assess the cost of long-term care in terms of nursing homes. By doing so, the math becomes simple: the average stay in a facility is 2.5 years, which is then multiplied by an average cost of $67,000 per year, resulting in $167,500. This would seem well within the ability of a person with $2.5 million to pay. This fails to take into consideration two critical issues. Long-term care is not about nursing homes and that income pays for care.

Every carrier in the long-term care insurance industry reports that the overwhelming percentage of claims submitted is for care at home and in the community. The cost of that care easily exceed a nursing home stay (which may never be necessary) and therefore must be factored into the overall cost of assistance over a period of years.

Assuming a 5% rate of return and that 100% of the portfolio is in income producing investments, $2.5 million would generate approximately $125,000 each year. As previously stated, it is likely that income is fully committed to support lifestyle. Question: Where''s the money going to come from to pay for care?

What about the client with $20 million in assets? The first question to ask is, "What is the nature of his or her assets?" Many small business owners have the majority of their wealth tied up in their company. Paying for care can pose a liquidity problem. Have you considered the tax consequences of liquidating assets in order to pay for care? What of the portfolio has to be sold in a bear market? There is also the issue of legacy assets and which of them would have to be sold to fund care over a period of years.

SUMMARY: Clients nearing retirement focus not on assets, but how much income they will need to support their lifestyles and keep financial commitments. $2.5 million is therefore reduced to the income it generates. Since that income is already committed, it presents the client with very difficult choices, should care ever be needed in the future.

If you are considering the self-insure approach, let me show you a way to use an existing asset to leverage the potential risk. If you don't use it for long-term care you still hold the asset.

Call me at 239-280-3246 today or eMail me by clicking here

LTCi Doesn't Protect Assets - It Protects Income

It has long been held that long-term care insurance protects assets. It doesn't; it protects income. Clients work a lifetime to accumlate a portfolio which will generate sufficient income in order to maintain their standard of living during retirement. This lifestyle also includes keeping prior financial commitments. It is not unreasonable to assume that retirement income is matched almost dollar for dollar with retirement expenses. Since nothing has been allocated to pay for care, the income, already committed, will have to be reallocated. Where else can the money come from?

In its purest, long-term care insurance is no different than disability insurance; it provides a source of income. In this case, that inmcome can be used to pay for care. This allows the client's retirement income to continue to be used for its intended purpose, supporting lifestyle and keeping financial commitments. Without the product, the family has limited options. They can curtail their lifestyle or liquidate assets. The former may have far reaching consequences. The latter may create serious tax issues and/or shorten the payout of qualified funds and annuities.

NEXT Posting> Not All Wealthy People Can Afford To Self-Insure

Long Term Care Insurance is For the Wealthy

Of all the obstacles long-term care insurance (LTCi) faces in becoming a viable product for the financial services industry, none is harder to overcome than the belief that it is inappropriate for high net worth individuals. These clients are generally defined in trade journals as having at least $2.5 million in investment assets.

This belief is based on fundamental misconceptions of what long-term care insurance actually does. That, combined with a historical antipathy towards the product, leads many to suggest, "You can self-insure."

There are three key misconceptions: 1) LTCi protects individuals, 2) LTCi protects assets, and 3) wealthy people can afford to self-insure.

LTCi Doesn't Protect Individuals - It Protects Families

To understand what long-term care insurance does, you first need to understand what motivates people to purchase it. The commonly held belief that individuals purchase the product for reasons such as, maintaining their independence, getting into a good nursing home, or to avoid being a burden to those they love, is incorrect. No one purchases any form of personal line insurance such as life or disability income to use it; if they did the carrier would never sell it to them.

As with these traditional products, people purchase long-term care insurance because they understand the consequences an unlikely event such as needing care would have on those they love. Simply put, reasonable people never assess the risk of needing care, only the consequences to those they care deeply about if they ever need care. If they believe they are severe enough, clients will then disregard risk and focus only on a way to mitigate consequences. It is therefore, essential for the professional to understand what these consequences are.

The majority of care is informal in nature, being provided by family and/or friends. This assistance, referred to as custodial care, is necessary because of chronic debilitating illness makes it difficult, if not impossible, for people to perform basic daily functions. The nature of custodial care can be all-consuming for the providers, leading to serious emotional and physical consequences. Put simply, if your client needs care over a period of years, his/her life is not going to end. The lives of those providing care, as they know it, are going to end.

NEXT Posting> LTCi Doesn't Protect Assets - It Protects Income

What if I purchase Long Term Care and never need to use it?

I’ve wasted my money, right? Of course not, you’ve benefited from having the peace of mind that your care is guaranteed if you ever need it. The purpose of insurance is to cover catastrophes and we all hope we never need to use it!

Let’s make a comparison. What if you could buy a policy to insure your $500,000 home and pay a single premium of $100,000? Then fifteen years later you sell your home never having used your home insurance. How would you feel if you could get your $100,000 premium back? You’d be ecstatic!

You can do that with Long Term Care! Instead of insuring your home you insure yourself. You can buy a Long Term Care Policy with a single premium and if you don’t need to use it the premium will be returned to you, guaranteed!

Call me for the details.

Your Future

No one can predict the future! Minimize the stress in your future by implementing a Long Term Care plan now!

It is important to have your plan in effect before you need it. If you put off purchasing a plan until you need it you may not qualify for it due to your health. If you do qualify the cost may be prohibitive. The best time to purchase Long Term Care is now, because premiums are based on your current health condition and age.

Don’t put off for tomorrow what needs to be done today!

Give me a call and allow me to share the many options and plans available in today’s market. There’s one that’s right for you

You're NOT Too Young To Plan NOW For Long-Term Care

November is Long-Term Care Awareness Month, .... even the U.S. Congress has urged "the people of the United States to recognize (this) as an opportunity to learn more about the potential risks and costs ... and the options available". We're proud to support this important educational campaign.

Smart reasons to think about long-term care as part of your overall financial plan.

You protect against other risks like a car accident or house fire. A need for long-term care is a risk to your savings and to your retirement. It will impact your family and loved ones. Just as it is smart to plan ahead for retirement, it's smart to plan now for long-term care. Here are some things you should know:

Buy before age 65; avoid the high cost of waiting. Your age and your health are important factors that determine the cost of long-term care insurance protection. Costs are based on your age at application and go up each year. By waiting to purchase until you are closer to retirement you might find it's just too expensive to buy this important protection.

At younger ages you can lock in good health special savings. Your good health today can help you "lock in" preferred health discounts that won't change even if your health does. If you currently have a health condition it's especially imporant to find out if you can health-qualify before it may get worse.

Discounts can help significantly reduce the costs. I believe you will be surprised by how affordable long-term care insurance protection can be for some of the newer plans suited for people your age. Today, there are ways to reduce the cost of long-term care insurance; savings available when you plan ahead.

The first step is in yourn hands. Getting the information you need to make an informed decision is always a smart move. Waiting is never advantageous. I encourage you to make this first step. Call or email me. There's no obligation, of course, Make Long-Term Care Awareness Month the time you start planning!

Additional Legal News ... You can Use

Question: Can a long-term care insurance policy be owned by an (irrevocable) trust? The goal of having this done to have the trust pay benefits directly to a facility so the actual person won't lose VA access to whatever care VA covers. It seems that if one had income from a policy reimbursemnent, it could mean they couldn't get the VA coverage.

Answer: To answer this question, our expert spoke with the VA to get a more definitive answer, but they didn't have an answer either without consulting the local eligibilty office (so the final outcome could depend on where the individual lives).

A long-term care insurance policy can be owned by an irrevocable trust if the carrier allows 3rd party ownership. That being said, this may not accomplish what the client wants. I assume the client is concerned that the LTC benefits would disqualify him or her from medical benefits (as the VA nursing home is free). If this assumption is correct, are the client's VA benefits dependent upon low income? If not, the benefits should have no effect on eligibility. If the benefits are dependent on low income, it does not appear that the application asks for such payments in the income section, however, they should contact the local VA eligibility office to definitely answer that income question.


Question: If a single woman buys LTC insurance and then later gets married and the spouse buys coverage, is the spousal discount applied to the second policy? Or, how does it work?

Answer: With most carriers this is how it would work. Ms. Smith purchases coverage with carrier "x". When married and Mr. Jones gets coverage (also with carrier "x") Mr. Jones' policy will be issued with the spouse discount. The new Mrs. Jones (Smith-Jones if you prefer) will have the spousal discount applied as of the effective date of her (new) husband's policy. Rules will vary from insurer to insurer and because the spousal discount can be so significant, it is worth checking this out in advanced.

Legal News ... You can Use

Question: Long-term care insurance premiums may be paid from a Health Savings Account (HSA). It is my understanding that someone on Medicare cannot have a HSA and thus take advantage of this. Does this mean that someone paying premiums from a HSA will need to stop doing so once reaching 65 and going on Medicare?

Answer: According to IRS Notice 2004-50, 2004-33, IRB 196, A-3; an individual enrolled in Medicare Part A or B may not contribute to an HSA. If someone is eligible for Medicare but has not enrolled, they may still make the contribution. The LTCi premiums would still be an allowable distribution from a HSA, just no further contributions would be allowed for this individual.


Question: Where precisely does a self-employed person write off tax-qualified LTC insurance premiums? And where does he/she write off premiums paid for her W-2 employee who is also her husband? Both policies will have shared riders.

Answer: The actual deduction for the long-term care insurance premium paid by a self-employed individual is actually taken on line 14 of Schedule C (of the For 1040). As you know, the deduction is limited to the amount of the "Eligible Premium" amount for the self-employed individual and spouse of the self-employed individual (Internal Revenue Code Section 162 (I)(2)(C) and Section 213 (d)). If the spouse is a bona fide employee of the business, then the actual long-term care premium may be deducted for the employee / spouse's policy (Internal Revenue Code Section 162 (s)).

2010 Tax Limits Announced

The Internal Revenue Service (IRS) has just announced the increased deductibility levels for long-term care insurance policies purchased in 2010. I think there are several positive things worth noting ... and sharing with others.

First, the maximum deductible limit for an individual now exceeds $4,000. That should get some people's attention - even though few individuals qualify for the personal deduction. Second, the levels were increased for 2010. Pension contribution limits for 2010 were NOT increased.

Here are the 2010 limits:

Attained Age Before Close of Taxable Year
Age 40 or less: $ 330
More than 40 but not more than 50: $ 620
More than 50 but not more than 60: $1,230
More than 60 but not more than 70: $3,290
More than 70: $4,110

The per-diem limitation under 7702(d)(4) for calendar year 2010 is $290.

Your Good Health Today Can Save You 10% - 20% Each Year

Drivers who've had accidents pay more for their car insurance than good drivers who benefit from good driver discounts. When it comes to long-term care insurance protection, individuals who are in good health when they apply for coverage can take advantage of good health discounts. These good health (or preferred health) discounts can reduce the yearly cost of your long-term care insurance protection by 10-to-20 percent. Best of all, once you qualify for a good health discount, you won't lose the annual savings, even when your health changes.

Four Important things to keep in mind:

1) Health changes as we age. Even a simple change that is not life-threatening can cause you to lose the ability to qualify for good health discounts offered by insurers.

2) Each long-term care insurance company sets its own good health standards. An existing health condition that may be acceptable to one company ... may not be acceptable to another.

3) Taking common medications, and even your weight can impact your ability to qualify for good health discounts with some insurers.

4) If one company denies your application for long-term care insurance, another may refuse to insure you. But that's not always true; so seek professional advice BEFORE you apply.

There Are Ways To Reduce the Costs of Long-Term Care Insurance

Most people believe they are likely to live a long life ... into their 80's, their 90's and maybe even longer. When you live a long life, you are more likely to need long-term care. Maybe you've seen this with an aging parent, a friend, or a neighbor.

When the need for long-term care occurs, will you be prepared? Will you have a plan in place? No one likes to think about aging. But, like it or not, we're all going to get older and that means you have to plan for it. When it comesto planning for long-term care, it's never too early to get the facts you need to make a smart decision. That's especially important because once you have health problems getting protection may be more difficult or even impossible.

When it comes to long-term care insurance, here are three important facts few people know:

1) There are ways to reduce the cost significantly.

2) A change in your health can increase what you pay for insurance protection. It can make it impossible to get long-term care insurance no matter how much you are willing to pay.

3) You might be surprised how affordable long-term cre insurance protection really is when you compare it to having to pay for care itself.

Remember: Living a long life is likely .... Planning for it is necessary and a smart financial move.

CMS Posts Quality Ranking of 16,000 Nursing Homes

The Centers for Medicare and Medicaid Services has launched the federal government’s first website devoted to ranking of the 15,800 nursing homes that participate in the public insurance system. Homes are assessed based on health inspection surveys, quality control measures and staffing levels.

In this first round of rankings, twelve percent of homes earned a top rating of 5 stars; twenty-two percent earned the lowest rating of 1 star and the remaining sixty-six percent were distributed fairly evenly at 2, 3, or 4 stars.

Consumers are urged to use the ranking in their evaluation of nursing home alternatives in their area, but are advised the data is no substitute for personal visits and discussions with administrators.

To review the rankings, click here for the Nursing Home Compare section of the www.medicare.gov site.

National Magazines Help Promote Interest in LTCi

It’s always nice when widely-read, national publications have good things to say about long term care insurance. On September 9, SmartMoney ran a lengthy article on the tax perks associated with buying coverage. On August 7, US News & World Report listed long term care planning as one of their five top tips when handling your aging parents’ finances.

Read the articles here and here.

Near Retirement? Cash Values in Life Insurance Can Pay For LTCi

What should older clients do with the cash value life insurance they no longer need? Rather than cash in their policies and face the dire tax consequences, many advisors are finding creating uses for the internal build-up, including paying for LTCi. Two relevant articles that speak favorably of the strategy were written for consumers and appeared in the August 30th edition of the Chicago Tribune.

Read the articles here and here.

Latest Alzheimer’s Research Findings

Scientists in Britain and France say they have discovered three major genetic links to Alzheimer’s, which could affect up to 20% of people with the disease. The hope is that future treatments could be developed to remove the detrimental effects of the genes. Some scientists have called it the most significant such discovery in 15 years.

Read the article here.

What Do Consumers Pay For Long-Term Care Insurance

The Partnership program provides enormous benefit for consumers. It also provides significant benefit to insurance professionals.

One of the most important benefits is the gathering of relevant information. The following is preliminary information gathered from the Partnership States. While the numbers may change, it sheds an important light on the subject of what people pay for long-term care insurance protection. It clearly shows that the majority of consumers are spending far less for long-term care insurance protection than what's reported in the consumer media.

The following data is based on over 70,000 individuals (under age 61) purchasing Partnership long-term care insurance policies between January 1, 2009 and June 30, 2009.

Premium Amount Percentage
Less than $500 18.1%
$500 - $999 33.2%
$1,000 - $1,499 11.1%
$1,500 - $1,999 10.2%
$2,000 - $2,499 7.6%
$2,500 - $2,999 6.0%
$3,000 - $3,499 4.7%
$3,500 - $3,999 3.3%
$4,000 and Over 5.3%

Why are these numbers so important?

Because, here is the number a highly respected organization reports to the media: "The average individual buyer in the first three months of 2009 is paying $2,129 during the first year of coverage." (June 8, 2009)

If consumers perceive $2,129 is the cost (that's $4,258 for a couple) they are going to believe that long-term care insurance is EXPENSIVE. And, they are not going to buy.

BUT 72.6% PAID LESS THAN $2,000. And more than half paid LESS THAN $1,000.

It is very hard to overcome perceptions. Let's hope facts will help.

Long-Term Care Protection Using Life Insurance Or Annuities

The provisions of the Pension Protection Act (PPA) of 2006 provide new tax benefits for what are often referred to as long-term care combination plans. These new benefits apply for life insurance policies and annuity contracts. PPA permits tax-free distribution of life insurance or annuity cash value to pay for long-term care (both beginning in 2010). As a result, you now have multiple ways to accomplish your long-term care planning. There is, of course, traditional long-term care insurance that you can buy on an individual basis or through your employer. These new products are also available on an individual basis or, increasingly, through a plan offered by your employer.

Why Are People Interested In These Options?

These combination products address one of the common objections of consumers to "stand-alone" long-term care insurance -- "wasting" the premiums if they never need long-term care. In fact, policies may offer a Return of Premium option (you could say a Money Back guarantee) that allows for a full refund of your premium at any time.

Life Insurance and Long-Term Care Benefits

You can obtain two forms of very valuable protection in one convenient policy. Some companies offer recurring premium policies which may be more attractive to middle-aged buyers. Others offer single-premium policies that can be attractive to older consumers with invested assets they have set aside to "self-insure" their health and long-term care needs in their retirement years.

Like all life insurance policies these policies pay a death benefit to your beneficiaries. What makes them special, however, is your ability to use as much of your death benefit as you need to pay for qualifying long-term care costs.

The second approach is the "optional rider" policy design. The base policy you buy is permanent life insurance (as opposed to term life) and the long-term care benefit protection is provided through an optional rider. Often these policies involve a recurring premium payment.

Some policies will provide multiples of long-term care benefit options. So, say you purchase $200,000 of life insurance; you could have access to $400,000 to pay for qualifying long-term care costs. Any portion of your death benefit not used for long-term care will go to your beneficiaries as a death benefit.

Annuities and Long-Term Care Benefits

Currently, there are only a few insurance companies that make available an Annuity+LTC combination offering. But a number of companies have products on the drawing board a result of the Pension Protection Act of 2006 that allows for tax-qualified long-term care benefit payments from annuities beginning in 2010.

Items To Know About Long-Term Care Insurance

If you are thinking about long-term care insurance, here are the most important things to know:

1. You must health-qualify for long-term care insurance. Not everyone can. Because health changes, especially as you grow older, it's smart to look into this well before you reach retirement age (your 50s are generally the best time to start).

2. Long-term care insurance can be far more affordable than most people think. Cost is an issue; so you need to know there are many ways to make this protection affordable.

3. Rates (Premiums) can vary significantly from one insurer to another. Each insurer has pricing "sweet spots" based on your age when applying. Available discounts and options can vary too. It's a reason to work with someone with access to policies from multiple insurers.

For example, here are yearly rates for basically equal coverage from four insurers for a couple ages 60 and 55. $3,133 (Genworth). $3,138 (John Hancock). $4,301 (New York Life). $5,148 (Northwestern Mutual). As you can see, it is important to speak with a knowledgable professional able to get you the best coverage for the best rate.

4. Health qualifications can also vary from one insurer to another. If you're in great health, don't use tobacco products, take no medications -- then every insurer will accept you. Each insurer sets their own health-qualifications and they change from time to time. Be prepared to share information with an insurance professional. You want them matching you with the company offering the best protection for the best price.

5. You're only going to buy long-term care insurance once. Deciding to buy long-term care insurance is a financial and emotional decision. But, it's different than buying car or home insurance, which people switch from time to time. It's almost never economically advantageous to switch (primarily because costs are based on your age at application). Many people sell long-term care insurance. Make sure you work with someone who really knows this business. It will save you money and yield benefits for many years to come.