June 23, 2024
How Long Term Care Insurance Can Protect Your Inheritance

Who needs long-term care insurance and why?

The best candidates for long-term care insurance are Americans with at least several hundred thousand dollars of assets but who aren’t so wealthy that they can comfortably pay for care out of pocket.

 

Buying long-term care insurance may not be a good use of money for individuals with less wealth because Medicaid will step in to cover most nursing home or assisted living expenses once they qualify. However, depending on state rules, at-home care can be difficult to cover by Medicaid, so comprehensive long-term care insurance may provide more options for those who want to age at home.

 

Annuities with long-term care riders

Annuities are yet another alternative to standalone long-term care insurance policies. These products can provide a guaranteed income stream throughout retirement in exchange for an upfront payment. As with permanent life insurance, annuities can be combined with a long-term care rider in order to cover qualifying long-term care expenses. These are often called long-term care annuities.

 

According to the Administration for Community Living (ACL), there are two main types of long-term care annuities: immediate and deferred annuities.

 

Immediate long-term care annuities

Immediate long-term care annuities provide a fixed monthly income stream for life or for a set period in return for an upfront premium payment. This option is available to applicants regardless of their health, even if they already require long-term care services. The monthly payment amount will depend on the annuitant’s age, health and initial premium amount.

 

Deferred long-term care annuities

Deferred long-term care annuities are available to applicants up to age 85 who can meet certain health criteria. Like immediate annuities, you make a single premium payment and receive a fixed monthly income stream for a specified period.

Long-term care bills can significantly deplete a planned inheritance, especially when someone needs nursing home, assisted living facility, or in-home care for multiple years and doesn’t have a plan to pay for it.

 

Long-term care insurance isn’t a small investment, nor is it the only way to prepare for these later-in-life costs. However, it can be a powerful tool for asset preservation, considering that policies can cover hundreds of thousands of dollars in care expenses. In terms of an inheritance, that can make the difference in whether an aging person can hold on to their home and pass it down to a loved one, for example.

 

According to the American Association for Long-Term Care Insurance, at age 60, the average annual cost of a long-term care insurance policy with a $165,000 benefit is $1,200 for males and $1,960 for females.

 

Some Americans take out policies in their 50s, typically getting a lower monthly cost by starting earlier. While long-term care insurance can be costly regardless of age, it provides valuable financial protection against the cost of long-term care, which can be astronomical.

Can I buy long-term care insurance for my parents?

Pietrangelo says some of her clients pay for long-term care insurance for their parents, which means the child is the payor and the parent is the insured. Your parents must agree with this and sign the paperwork.

 

For some families, combined life insurance and long-term care insurance policies are more appealing than traditional long-term care insurance. With these hybrid policies, there’s a total death benefit like standard life insurance, but some of it can be used for long-term care, and that amount is subtracted from the death benefit. A child could pay for the insurance policy and be the beneficiary of the death benefit.

 

Janet Fox, president and LPL-affiliated financial consultant at ACH Investment Group, says having a family meeting with a financial professional can be worthwhile. During that meeting, families can review the parents’ assets and whether long-term care or life insurance with long-term care coverage could be a smart tool to preserve them.

Who needs long-term care insurance and why?

The best candidates for long-term care insurance are Americans with at least several hundred thousand dollars of assets but who aren’t so wealthy that they can comfortably pay for care out of pocket.

 

Buying long-term care insurance may not be a good use of money for individuals with less wealth because Medicaid will step in to cover most nursing home or assisted living expenses once they qualify. However, depending on state rules, at-home care can be difficult to cover by Medicaid, so comprehensive long-term care insurance may provide more options for those who want to age at home.

 

On the other end of the spectrum, people with a net worth of several million dollars can expect to cover the cost of their care and still leave a nice inheritance. Some experts say long-term care insurance doesn’t make much sense at higher wealth levels because insurance companies price their policies to make money. This means you’ll likely pay more for your insurance coverage than you would for out-of-pocket expenses.

On the other end of the spectrum, people with a net worth of several million dollars can expect to cover the cost of their care and still leave a nice inheritance. Some experts say long-term care insurance doesn’t make much sense at higher wealth levels because insurance companies price their policies to make money. This means you’ll likely pay more for your insurance coverage than you would for out-of-pocket expenses.

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