Why You May Need Life Insurance – Long Term Care


ActingI must first confess that my personal political opinions tend to be conservative.  However, it bothers me how hypocritical I see many on the right are.

They scream and complain about how fiscally irresponsible Barack Obama and the Democratic Senate is.  To a degree, I see their point.

However, knowing what I know about insurance, I know that much of their posturing is designed to gain political superiority.  They are living proof of the old proverb, “Your actions speak so loudly that I cannot hear what you say.”

In this post I want to point out a blind-spot that many ultra-conservatives have.

Early in my career I was taught, “Don’t complain about a problem unless you also have a solution.”  After I expose this hypocrisy, I want to share a potential solution.

BLIND-SPOT

Medicaid is the largest program in many state’s budgets already.  Obamacare looks to expand the program.  Many states with conservative leadership are looking for ways to make cuts in the Medicaid programs.

Medicaid is, by far, the leading payer of Long Term Care expenses.  The latest figures I have seen show that for every dollar Medicaid spends for health care, it spends 3 dollars on Long Term Care expenses.

As the Baby Boom generation ages, the amount of money that will be required from Medicaid will only increase unless something is done.

In 2005. the Deficit Reduction Act, signed by George Bush, authorized states to develop a Partnership arrangement between Medicaid and private insurance companies.  The purpose of the program is to encourage people to make plans ahead of time for their Long Term Care needs.

If you have a “Partnership” plan and use all your insurance benefits, Medicaid will waive the “Asset Test” and “Estate Recovery Rights” in order for the government to take care of you.

The latest numbers I have seen say that 70% of Americans who retire will need Long Term Care at some time during retirement but fewer than 7% of the population have Long Term Care insurance.

That tells me that millions of Americans who scream about how fiscally irresponsible the federal government is, have not taken advantage of the programs that are available.  They scream about how the politicians are forcing our children and grandchildren to pay our bills.  They have a point.  However, by not taking steps to pay their own future Long Term Care expenses, they are willing to rely on the same government to pay for their care in the future.  To me, that is hypocritical.

ILLUMINATION

What I am about to suggest is only one of several potential solutions to the coming Long Term Care crisis.  You still have the option to buy true Long Term Care insurance or spend your life savings down to the point that Medicaid will pay your Long Term Care bills.

Just be careful, if you elect to get help from Medicaid, the state will put a lien on your house.  Your spouse will be allowed to live in the house until she dies but when she passes, the state can force your executor to sell your house and repay the state for all the money they spent on your behalf before your heirs will get anything.

In recent years, some Life insurance companies have noticed that while Americans are not buying as much Long Term Care insurance as they need, they are still buying Life insurance.

Recent changes in the law have allow Life insurance companies to not only offer tax-free death benefits.  They can now give you the option to use your death benefit while you are still alive.  You can use your death benefit to pay your Long Term Care expenses.

Just be advised that the benefit you elect does not cover both.  If you use the money for Long Term Care expenses, your beneficiary will only get what is left of the death benefit after your Long Term Care benefits have been subtracted.

Not all insurance companies offer the Long Term Care rider.  Those that do, are not guaranteed to attach the rider to all the plans they offer.

Most Long Term Care riders, that I have seen, can only be attached to permanent types of Life insurance (e.g. Universal Life.)

ADDITIONAL RECOMMENDATIONS

Not every plan is right for every citizen.  As you and your insurance professional design your portfolio, here are some suggestions that I offer for your consideration.

  • If the value of your assets exceeds $350,000 ($700,000 if you are married) consider using one of the new Life insurance plans with a Long Term Care rider.   If you use the money in your Life insurance policy to pay your Long Term Care expenses, not only would your spouse still be able to use your life savings, you would preserve your estate for your children and grandchildren to divide.
  • If the value of your accumulated assets is $100,000 – $350,000 ($700,000 if you are married) consider purchasing a true Long Term Care “Partnership” plan.  The cost for them are typically very close to what you are already used to paying for Life insurance if you buy one in your 50s.  Even if you wait until you are in your early 60s, the price for a base Long Term Care insurance policy (LTCI) is not too great.  The stories you have heard about the astronomical premiums for LTCI are for people who have waited until after they have retired to plan for Long Term Care expenses.
  • The average American retires with less than $100,000.  If that is the situation in which you find yourself, don’t think that you have no other choice than to rely on Medicaid to pay for your Long Term Care expenses.  With a little planning, one of the recent combination Life and Long Term Care policies would be sufficient.

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