Chapter 9
IN THIS CHAPTER
Discovering long-term care and your options for financing it
Looking at long-term care insurance
Financing your long-term care with personal assets
Choosing a combination policy
Many Americans in or nearing retirement have two great fears according to surveys: running out of money and needing long-term care (LTC) if they’re unable to care for themselves. These fears are related. After all, long-term care can be expensive, causing you to run out of money and placing a financial burden on your loved ones.
Fortunately, running out of money because of your need for long-term care isn’t inevitable. With a better understanding of long-term care and some planning, you can dramatically reduce the possibility of either of these fears coming true. Many people don’t plan properly, because long-term care financing options can be confusing. Also, long-term care insurance (LTCI) seems expensive, so folks put it off.
In this chapter, we define long-term care and explore the different ways to buy/finance it. We also examine long-term care policies and show you how to reduce the cost by adjusting the terms. Finally, we review alternatives to traditional LTCI.
Long-term care may mean something different to every person. Basically, the term covers any assistance you may need with your day-to-day living. The forms of long-term care depend on the level of assistance you need, which we cover in the upcoming section. Planning how to pay for LTC if you need it is an important consideration when you’re putting together your retirement plan. The following sections help by looking at when you may need LTC and how much it can potentially cost.
Depending on your needs, you can receive LTC in a number of environments. In this section, we discuss the main ways of receiving LTC. The following five types show different levels of care, from least to most care:
Home care: Most people want to stay in their homes for as long as possible. In home care, an agency often assigns its employees to people needing care. Many people, however, receive home care from family and friends who provide unskilled assistance, often without compensation. Home care may be provided for anywhere from a few hours weekly to 24 hours a day, seven days a week. Home care can consist of personal services, such as cooking and cleaning, provided by a home health aide. It also can consist of skilled medical care, often provided by a nurse or other licensed professional.
When using home care, you need to be confident that the agency is screening employees before they’re hired and monitoring them to be sure proper care is being delivered.
Assisted living: Assisted living often is confused with nursing home care. Many people think they’re interchangeable, but they aren’t. Assisted living usually is delivered in an apartment-like building that has on-site services such as dining, physical therapy, and limited nursing care, along with a range of social and recreational activities. Assisted living is for those who need some help with one or more activities of daily living (ADL), but don’t need skilled nursing care or a lot of help, attention, or rehabilitation.
In most states, assisted living facilities usually are less regulated and aren’t required to have significant nursing or other medical care on the premises.
After considering the type of care you need and want, you also can look at the different ways care is provided. The following are three frequent ways of providing the care:
Continuing care communities: These multipurpose communities offer several different kinds of senior care facilities in one location, usually independent living, assisted living, and a nursing home. You pay a large fee when entering the community, plus monthly charges. As you age and more care is needed, you can shift from independent living to assisted living to a nursing home. Admission at each level of care is guaranteed when you need it.
A big advantage of continuing care facilities to married couples is that if one spouse needs to move to a higher level of care, the other is living a short walk away in the same community.
You may not need LTC, and if you do ultimately need it, LTC usually isn’t a stereotypical multiyear stay in a nursing home. In fact, the odds of needing extended, extensive LTC in a nursing home are lower than most people think — but not negligible. Yet, care at home or in an assisted living facility is more likely and will last longer than most nursing home stays. In fact, the use of these services is growing.
However, with life expectancies increasing, some experts expect that a higher percentage of today’s 65-year-olds will need extensive LTC in their lifetimes than their predecessors. The theory is that people will live longer and will need assistance during the later and traditionally frail years.
As averages and probabilities for the population as a whole, the numbers on long-term care needs can be misleading because they don’t tell how likely it is that you will need LTC. Also, the surveys have different ways of defining LTC. Often, a few days in a facility to receive rehabilitation or physical therapy after surgery is counted as LTC when your real concern is an extended need for care. However, statistics can still provide you with important information. Consider the following statistics:
The potential cost of LTC is a mystery to most Americans. They think that it’s expensive, but they don’t know how expensive. So when considering and planning for LTC, you want to have a good idea of how much it costs in case you (or your spouse) should need it.
In the following sections, we provide you with some information on the costs. Fortunately, the quality of cost estimates has improved in recent years. Even so, you have to use surveys and estimates of the costs carefully. We explain some strategies and tools that can help you make informed decisions based on your own situation and location.
The good news is that research on the cost of LTC is available to help you with this calculation. The bad news is that the results of this research still yield only broad-based estimates. You need to refine the estimates in your final LTC planning. That’s because several factors can affect the costs in your situation. In this section, we first show you some of the data, and then we remind you of the factors you need to keep in mind when making the final calculations.
For someone turning age 65, there’s about a 31 percent probability no LTC will be needed. For those who do need LTC, about 48% will need less than one year. Another 19% will need one to two years of LTC, and 21% will need two to five years. The other 13% will need five or more years of LTC. That’s according to data from Nicolas Rapp published on the AARP website. The American Association for Long-Term Care Insurance (AALTCI) asked actuaries to estimate the percentage of people who will use the benefits of LTCI if they purchase the policy at age 60. If the policy has a 90-day elimination period (waiting period), the actuaries estimated that about 35 percent will use their policy benefits.
Each year the insurer Genworth publishes a study of the cost of different types of LTC around the country. The study reports on the daily cost of home personal care, home healthcare, assisted living, and nursing home care. The costs are broken down by the major regions or population centers within in each state.
In 2020, the monthly median cost of home personal care was $4,481, and the monthly median cost of a home health aide was $4,576. Assisted living cost $4,300 per month. A semi-private room in a nursing home cost $7,756. Remember those are national median costs. In some areas the costs are substantially higher, and in some they are lower.
Costs vary greatly around the country. If you plan for the national median cost but incur LTC costs in a high-cost area, you won’t have enough money. If you incur LTC costs in a low-cost area but plan for the national median, you will have diverted too many resources to LTC financing. Plan for LTC costs in the area you’re likely to incur them.
You can find the average cost per state on the website for Genworth (www.genworth.com
). You also can drill down to see the median cost in a particular city, state, or ZIP code. The site also lists the costs per hour, day, month, and year. There are separate reports for nursing home care, assisted living, home care, and adult day care. But keep in mind that these are median costs. Costs vary among providers.
Keep this in mind as you determine the area in which you plan for LTC: The choice of facility usually is made by an adult woman related to the LTC recipient, such as a daughter or daughter-in-law. The LTC provider is likely to be located near the decision-maker. If you don’t live near your adult children and don’t determine ahead of time where you would like to receive any needed LTC, the costs are likely to be incurred near one of your family members. The costs in that area may be very different from the costs where you’re living now.
Calculating LTC costs according to your situation and where you anticipate having any needed long-term care is an important part of your financial plan. So in this section, we provide you with some tools and strategies for doing so:
Use insurance company websites. Each year Genworth updates its interactive website of long-term care costs. The details vary and the features of the site change regularly. In general, the site shows you the estimated costs of the different types of long-term care in the main population areas of each state for each of the different types of long-term care. It also estimates future costs after factoring in inflation.
Our recommendation of this survey isn’t a comment on the company’s LTC policies. Also, the point of this discussion isn’t to recommend that you purchase a long-term care policy from any insurer.
Putting together a clear plan for how you’re going to finance LTC is an important decision. You basically have five ways you can pay for any LTC you may need:
In the rest of this chapter, we examine private insurance, hybrid insurance, and self-financing.
One option you have to pay for LTC is through private LTC insurance (LTCI). This insurance is fairly standardized; the policy covers care under one of two events:
A traditional LTCI policy can be expensive, and premiums rise steadily as the insured ages. For example, a 55-year-old male paid on average $2,220 annually while a 55-year old female paid $3,700 on average in 2021 for a policy with $165,000 of benefits and 3 percent annual inflation protection, according to the AALTCI annual survey. A married couple age 55 would pay $5,025 per year. At age 65 the costs were $3,135 for a male and $5,265 for a female. A married couple paid $7,150 annually. These costs were averages. The premiums will vary by your residence, health history, terms of the policy, and the insurer selected. However, cost shouldn’t be the only issue you consider. The premiums for an LTCI policy, after all, are a small share of the potential cost of LTC.
In this section, we discuss the key policy provisions of LTCI and how you can adjust them to get the coverage you need at the best price. (In the later section “Evaluating Employer and Group Coverage,” we discuss the pros and cons of getting LTCI through an employer or other group, such as an association.)
In order to get a firm grasp on LTCI, you need a good understanding of what policies usually cover. The following list outlines important core features of most LTCI policies:
There have been significant changes in the traditional LTCI marketplace since 2008. Many insurers received more claims for benefits than estimated when the policies were sold. Some insurers also underestimated the cost of LTC. In addition, the insurers earned less investment income as a result of historically low interest rates and weaknesses in prices of stocks and commercial real estate.
Many insurers have left the market and no longer offer new LTCI policies. Only a few insurers still sell traditional LTCI. Most of the insurers have imposed substantial premium increases on existing policies in the years since 2008. New policies offer lower benefits than were available before 2008, and premiums on new policies are much higher. The “gold-plated” policies with lifetime benefits that we discussed in previous editions of this book are no longer available. A consequence is that fewer traditional LTCI policies are sold. The AALTCI estimates that of the approximate 350,000 LTCI policies now sold annually, only about 16 percent are traditional LTCI policies.
Potential premium increases are an important consideration when evaluating traditional LTCI. Some insurers try to limit the premium increases imposed on existing policyholders; however, no limits are set in the policies. After a policy is purchased, premium increases aren’t imposed on an individual based on age or changes in medical condition. Instead, premiums for an entire class of policyholders may be increased based on the insurer’s claims experience or other factors. These premium increases have to be approved by state insurance regulators.
The following sections look at key policy provisions and how you can use them to adjust both your coverage and premiums.
The coverage on an LTCI is stated as a daily benefit or reimbursement, such as $150 per day of covered care. The policy usually has separate daily benefit levels for the different types of care: adult day care, home care, assisted living, and nursing home care. (Refer to the earlier section “Naming the types of long-term care.”) Nursing home care has the highest daily rate, and the others have lower rates. Sometimes the other types of care have a specified daily rate. Other times their rates are expressed as a percentage of the nursing home rate.
The insurer usually allows you to choose from a range of daily benefit amounts in increments of $25 or $50 per day. To obtain full coverage, choose a daily benefit that equals or exceeds your estimate of the likely standard daily care rate plus extra costs not included in the daily rate, as discussed earlier in this chapter. Doing so ensures that the insurer covers the entire cost of care once the policy’s coverage kicks in. Unfortunately, insuring for the likely full cost of care is often expensive.
To reduce the cost of inflation protection, you could insure for a higher daily benefit than you’re likely to incur. Insurers tend to charge more for inflation protection than for a higher daily benefit. We discuss this method in more detail later in the section on inflation protection.
The waiting period provision of a policy, which also is known as the deductible or elimination period, is the length of time for which you pay for your own LTC before the policy starts paying benefits. For example, suppose your policy has a waiting period of 90 days. You receive certification from your doctor that you need LTC as defined in the policy. You begin LTC, whether at home, in an assisted living facility, or in a nursing home. After you pay the full cost of the care for 90 days, the LTCI begins coverage, paying whatever the daily benefit is.
Most insurers offer waiting periods from 90 to 365 days, though a few offer longer waiting periods. Few insurers now offer a waiting period less than 90 days. The most frequently selected waiting period appears to be 90 days.
But consider the trade-offs involved in a long waiting period. One estimate was that on average a 90-day elimination period reduced annual premiums by $750 compared to no elimination period. But when a nursing home costs $150 per day, the 90-day elimination period means you pay $13,500 in care before insurance kicks in, unless Medicare or some other coverage picks up part of the tab. At a premium savings of $750 annually, you have to own the policy for 18 years before needing coverage to break even on the longer elimination period.
The benefit period is the length of time the insurer will pay the daily benefit, which we describe earlier in the chapter. It used to be possible to obtain a “gold-plated” LTCI policy that guaranteed to pay the daily benefit for life. In the changes following the financial crisis of 2008–2009, most insurers eliminated this unlimited coverage. This type of policy was a tremendous solace for those unfortunate folks who worried they would end up spending many years in LTC, and it protected the assets of those who did. But only a minority of people need lifetime LTC or even LTC longer than five years (see the earlier section “Predicting who will need long-term care”), so choose wisely.
The potential disadvantage of the shorter benefit period is that you may end up being in the minority of those needing extended LTC. If so, after the LTCI benefits are exhausted, personal and family income or assets must be used to pay for the care. The only consolation in this situation is that after exhausting personal assets, you would qualify for Medicaid, as described in Chapter 12.
The cost of LTC rises steadily, and for years it increased at a rate about twice that of the Consumer Price Index (CPI). Fortunately, LTCI policies offer inflation protection clauses, and they’re key to making the policies valuable.
LTCI policies generally offer the following two types of inflation protection:
A better way to enhance inflation protection may be to increase your daily benefit limit. This is especially true if you’re older, say around age 70. Have your broker compare the cost of inflation protection to a higher daily benefit — around the daily cost you expect in 10 or 15 years. With some insurers, you’ll find that a significantly higher daily benefit limit is cheaper than compound inflation protection.
You’re likely to find that most types of LTC are covered and that the definitions of covered care are less subjective than 15 or more years ago. Even so, you still need to understand what’s covered and what’s excluded. When comparing policies, you should review the coverage sections for important differences.
The good news: The coverage limitations tend to be similar among the major insurers now. Make sure your policy covers the following:
Medically necessary care: You want to ensure that the policy you choose covers medically necessary long-term care. The term medically necessary basically means that a doctor or other health professional certifies that the insured needs help with two or more of the six ADL. A written plan of care also may be required for coverage to kick in.
You don’t want a policy that lists the specific diseases or conditions that result in coverage. In such policies, too often care is needed but not covered; or sometimes it’s easy for the insurer to decline coverage and force the insured to appeal the decision.
Home care: This care is standard in today’s policies; however, if possible, try to avoid a policy that limits home care to “professional home-care services” or something similar. Someone who needs custodial care that can be provided in the home likely needs help with basic daily chores such as cooking and cleaning, as opposed to medical services.
A member of your family or a trusted person outside the family may be able to provide nonmedical home care. If the policy doesn’t limit the source of care, the family member or friend can be paid from the insurance for the services. But if the policy limits covered care to that which is provided by a professional, only someone with a professional certification, such as a nurse’s aide or registered nurse, can be reimbursed. Likewise, a policy may limit coverage to care by a state-licensed provider, which also would preclude paying a family member.
When you’re thinking of obtaining an LTCI policy, you also need to contemplate two additional factors that aren’t part of the policy but need careful consideration before choosing a policy. The following sections explain.
An LTCI policy is a long-term commitment. You want to be confident that the insurer will be able to pay for covered care when you need it — even if that means decades from now. Theoretically you can switch policies if the insurer has financial problems, but you can’t rely on that option. Changes in your health status or the market may make it difficult to obtain a new policy (or at least an affordable one). Instead of taking those risks, choose an insurer that appears to be financially stable, even if the policy doesn’t have the lowest premiums.
So what can you do to ensure that an insurer is financially stable? Examine the following about the insurer:
The insurer’s underwriting process: The underwriting process is the medical screening process that the insurer uses to assess eligibility. Experienced LTC insurers conduct a medical review and don’t offer policies to people with health conditions or histories that indicate the potential for high or early claims. Other insurers that have little experience or that are trying to boost market share conduct superficial or no medical screenings. Those are the insurers who are most likely to run into financial trouble or to significantly increase premiums because claims are higher than they anticipated. If the insurer doesn’t conduct a meaningful medical screening before offering you a policy, consider that a red flag about the quality of its underwriting process.
Of course, if you desire an LTC policy but have some medical issues, you may be able to only get coverage from an insurer that does a less thorough screening. (Another option is a group policy through your employer, which required to take everyone regardless of current health conditions.) That said, answer all questions honestly because if the insurer can show that you lied on your application, you can later be denied coverage.
Some of the long-time LTC insurers boast, or at least used to, that they haven’t increased premiums or rarely increase them. What they mean is they don’t increase premiums on individual policyholders because they’re older or their health has changed. They generally do increase the premiums on an entire class of policyholders, however. The better LTC insurers historically kept these increases low.
LTCI has been less profitable than many insurers expected. In recent years, a number of insurers have stopped issuing new LTCI policies, and there have been significant premium increases by most insurers. Even insurers who had histories of few or low premium increases sought significant increases to compensate for low investment earnings, longer life spans, and fewer people letting their policies lapse. For each insurer, examine the history of premium increases in recent years.
People generally have two complaints about LTCI. It can be expensive, and if they never need LTC, they don’t receive any benefit from all the premiums they paid, except for the peace of mind. LTCI is a use-it-or-lose-it product.
Hybrid insurance products can overcome those objections, though they can have their own disadvantages. A hybrid insurance product can be an annuity or a permanent life insurance policy with an LTC rider.
Congress enhanced the attractiveness of these policies with the Pension Protection Act of 2006. This act provides the following:
The issue for you as a potential consumer is how to evaluate one of these combination policies when evaluating stand-alone LTCI is complicated enough. The following sections point out what you need to know.
A deferred annuity is a contract between you and an insurer. You give the insurer a lump sum deposit. This deposit is credited to your account. Each year the insurer credits interest to the account, increasing your account balance. There usually are restrictions on your ability to access the account without paying a penalty before a minimum time has passed, usually seven to ten years. The deferred annuity can be a safe, conservative, tax-advantaged way to save and invest.
Some deferred annuities offer a long-term care rider. If you opt for the rider, the insurer will begin paying you a monthly amount should you need LTC. The need for LTC usually is determined the same as under an LTCI policy. It is when you need help with at least two of the ADL or have cognitive impairment. The annuity contract specifies the maximum monthly payment. The payments initially are subtracted from your account balance. If your account is exhausted, the insurer makes additional payments up to a limit specified in the contract.
One annuity with a long-term care rider with which co-author Bob is familiar works like this. Harry deposits $100,000 with the insurer. The insurer will credit Harry’s account with interest each year. Harry also now has up to $300,000 of long-term care benefits, three times his deposit. If Harry or his wife, Linda, needs LTC, he files a claim with the insurer and it begins making monthly payments. The maximum monthly payment is about $4,200. That provides up to 72 months of LTC payments from Harry’s $100,000 deposit before the coverage limit is reached.
As Harry and Linda receive payments for LTC, the payments first reduce the annuity balance. Once the balance is zero, the insurer pays the additional amounts until the contract limit is reached. Harry and Linda’s children inherit the annuity balance if Harry and Linda never need LTC or don’t need enough LTC to use the balance.
When a life insurance policy is combined with LTCI, it’s a permanent life policy and not a term life policy. The LTCI is a rider that provides that a portion of the death benefit is available as an accelerated benefit during the insured’s life if LTC is needed.
Some policies, like the annuity described in the previous section, offer an additional LTC benefit if the policy death benefit is exhausted. But some insurers place a limit on the amount of the death benefit that can be withdrawn to pay for LTC. Any amount used to pay for LTC is subtracted from the death benefit. The premiums for the LTCI rider can be paid either as a lump sum or periodic premiums. The life insurance benefits are paid to the owner’s beneficiaries when LTC isn’t needed or doesn’t deplete the benefit.
Of course, the LTC rider isn’t free. The LTC benefits may be paid for by having less interest credited to your cash value account, receiving lower life insurance benefits for the premium dollar, or a combination of these and other methods.
The most attractive feature of the hybrids to many people is they are assured of receiving some benefit. Either the hybrid helps pay for LTC or the unused balance goes to their children or other loved ones. The insured also has access to the annuity balance or cash value of the life insurance if money is needed before LTC is. Another potential benefit is that the medical underwriting for a hybrid may not be as rigorous as for an LTCI policy. Someone whose health is too poor to qualify for LTCI may be able to obtain coverage under a hybrid. Before purchasing a combination policy, consider these questions:
When it’s time for an LTCI policy to pay benefits, the payments are made in one of two ways.
In a reimbursement policy the insurer reimburses you for your covered LTC costs. You or the provider of LTC sends a bill to the insurer. The insurer reviews the bill, determines the amount of covered care, and sends a check for either that amount or the daily coverage limit, whichever is lower. You or your loved ones may have to pay the LTC provider first, send paperwork to the insurer, and wait to receive the insurer’s check.
In an indemnity policy the insurer begins paying you the monthly benefit amount after you trigger the LTC coverage. The monthly amount is sent for as long as you need LTC, until the policy coverage limit is reached. You can use the money however you like. You can pay a family member to provide care at home, or you can pay an LTC provider. If the cost of care is less than the monthy payment, you can invest the excess or spend it on other things. Once you’ve established that you need LTC, you don’t have to keep sending invoices and proof of payment to the insurer.
The different payment methods can be found in both traditional LTCI and hybrid policies. It’s a factor you want to consider when choosing among competing policies.
After considering government programs, such as Medicare or Medicaid, private insurance, and hybrid insurance products, your final option is self-insurance. Self-insurance means paying for all the care out of your income and assets as the costs arise. Financing your own LTC isn’t for everyone though. The following sections identify whether this option is right for you, and, if so, a couple options you may consider.
Before you drop large amounts of money to pay for your own LTC, make sure doing so is a wise decision. We create two broad categories of people in this section to help you make this determination:
Of course, life isn’t as black and white as these two categories, so you may find yourself somewhere in the middle. Where are the dividing lines for these two groups? That’s a tough question. You need to look at the following factors when considering whether you can self-finance your LTC:
Consider how much LTC would cost.
Review the previous sections of this chapter about estimating the cost of LTC. After estimating the daily cost, compute how much a year or two would cost. Then, consider inflation over 5, 10, and 15 years. Are these amounts you’re comfortable self-insuring?
Assess the probability of needing LTC and its total cost.
Maybe you could easily absorb the entire cost of one year of LTC without significantly damaging your net worth or diminishing what’s left for your loved ones. But what if you’re among the relatively small number of people who need LTC for five years or more?
Some advisors believe a wealthy person always should buy LTCI instead of self-insuring, because the cost of the insurance is so low compared to the potential damage extended LTC could do to that person’s net worth.
Regardless of which end of the wealth spectrum you’re nearest to, read Chapter 12 carefully before choosing self-insurance. In that chapter, we explain how to qualify for Medicaid. We also give some reasons you may not want to rely on Medicaid to fund your LTC. Also, be sure to head to Chapter 3 to determine how long your assets may last in retirement.
People interested in buying LTCI understandably have trouble deciding the best age to buy a policy. Trade-offs abound in this decision, so it’s difficult to quantify the differences between them. In this section, we offer the main points to consider when making the decision.
Another reason to consider waiting is you may be able to invest the money that would have been paid on premiums to earn a return higher than the increases in premiums — or at least a high enough return for the delay to make sense.
Having said all that, the following points favor buying a policy sooner rather than later:
Each year you wait, you risk paying higher premiums for other reasons. Insurers change and modify their policies every few years. The changes tend to result in higher premiums for the same level of benefits as the previous policies. So you pay higher premiums not only because you’re older but also because insurers paid higher claims than expected on older policies and make up for it by raising premiums on new policies.
Advisor Insurance Resource, an insurance broker, estimates that the product life cycle increases costs about 3 percent every three to five years. As Baby Boomers age, if insurers find they’re paying substantially more in claims than they estimated, premiums for late purchasers could soar.
When buying individual LTCI, you can choose between tax-qualified and nonqualified policies. The following highlights these two types of policies:
Tax-qualified policies provide a few advantages not generally available through nonqualified policies. Tax-qualified policies were only created in 1996, so we don’t have a lot of experience with them. However, here are some factors you want to consider about qualified policies:
The tax deductions are limited by the insured’s age. In 2021 the maximum premium deductions were as follows:
The amounts are indexed for inflation, and the most recent amounts can be found in IRS Publication 502 or on its website each year.
Qualified policies have less flexibility. They have certain required terms and provisions. A qualified policy must pay benefits only if the insured can’t perform at least two of the six ADL (dressing, bathing, eating, transferring/mobility, walking, and using the bathroom) or is suffering from cognitive impairment. In addition, a doctor must certify that care will be needed for more than 90 days. A nonqualified policy, on the other hand, also may pay benefits if the insured has a “medical necessity,” and a minimum need period of 90 days isn’t required.
Because of the restricted terms of qualified policies, a nonqualified policy generally costs 5 percent to 20 percent more than a comparable qualified one. Insurers supposedly expect to pay 20 percent to 40 percent fewer claims under the tax-qualified policies, so they charge lower premiums.
Self-insuring doesn’t necessarily mean that your loved ones will be left without an inheritance if you need extended LTC. You can choose to buy life insurance instead of LTCI. Life insurance is much cheaper than LTCI for most people, even when you buy permanent insurance instead of term insurance.
Another way you can finance your own LTC is with your home equity. Home equity can pay for LTC without your having to move or sell the home. In a reverse mortgage, also known as a home equity conversion mortgage, a homeowner who has little or no debt on the residence receives a loan. The loan can be a lump sum, annuity, or line of credit. No payments are due during the owner’s lifetime as long as they own the home. After the home is sold or the owner dies, the lender is paid from the proceeds of the sale. (See Chapter 8 for a deeper discussion of the reverse mortgage.)
In one scenario, you can set up a reverse mortgage line of credit instead of taking out LTCI. When you need LTC, you write checks against the line of credit to pay for the LTC until exhausting the line of credit limit.
Under another scenario, after beginning LTC, you can take out a reverse mortgage to pay for the care.
Either scenario means you or your spouse can live in the home for life. The value of your home wouldn’t be available for your heirs to inherit, but it could mean your other assets are preserved. Reverse mortgages can be guaranteed by Fannie Mae and the Department of Housing and Urban Development. Private, nonguaranteed reverse mortgages also may be available.
Another option you may have for obtaining LTCI is to look at what your employer offers. Some employers offer group long-term care policies. Employers rarely pay the premiums for you, but they use their purchasing power to negotiate favorable terms and premiums. If your employer offers this option, carefully compare the employer or other group policy with individual policies before choosing.
The following are some advantages of going with an employer-sponsored plan:
Group policies aren’t without disadvantages, though:
Your choices are limited. Earlier in this chapter we examine policy terms you can change to reduce premiums or fit your needs (see the section “Knowing the basic features of LTCI”). Those options usually are limited in a group policy. The limited choices are one way the cost of group policies is reduced. The reduced choices aren’t a problem unless you want or need a term that isn’t available.
For example, the group LTC policy offered (at one time, at least) to federal government employees automatically set a reimbursement rate for home healthcare of 75 percent of the nursing home daily rate. That may not accurately reflect the differential between home care and nursing home care in your area.
A good strategy for many people is a combination of government programs, LTCI, hybrid policies, and self-insurance. Many people don’t have enough current income to pay for a benefit-rich LTCI policy. They also usually don’t have enough assets and income to self-insure all the potential costs of LTC. If you’re in this situation, using all the strategies can help you cover your needs in most cases.
Here are two ways to decide how to combine all these tools:
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