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December 2005 Can you afford to have long-term care insurance? Or can you afford not to? A few simple strategies can significantly lower your costs Many people question the need for long-term care insurance. They wonder if it is truly a necessity and if they can afford it. Perhaps what they should wonder is whether they can afford not to own it. Long-term care insurance is rapidly becoming a priority product for many individuals. With the shock of the 9/11 terrorist attacks and the stock market’s spotty performance over the last few years, a growing number of people have begun to give serious consideration to the idea of protecting their assets not only from death and disability, but also from the potential need for extended long-term care. Long-term care insurance, however, can be expensive, especially at older ages. A typical benefit package ($150 per day for three years of coverage with a 100-day elimination period and inflation protection) costs approximately $2,000 per year at age 60 and $4,500 per year at age 70. But these premiums are very inexpensive when compared to the costs you and your family could incur if you do not own long-term care insurance. Younger adults, especially those from the Baby Boom generation, are also becoming increasingly aware of the need for long-term care insurance. They understand the financial benefits of purchasing coverage early in life to realize significant cost savings. They are also very interested in seeing that their parents have adequate coverage, to provide first-class professional care available if needed and to lighten the financial and emotional burden. Baby Boomers tend to recognize that the mobile society in which they live, combined with their own family and career demands, does not make them good candidates to be caregivers. In fact, many people are purchasing long-term care insurance for their parents at their own expense, either on an individual basis or through an employer-sponsored plan. Savings strategies Whether you are a younger or older consumer, here are a few suggestions that can make the purchase of this valuable coverage more affordable. Limited benefit period. While the best possible option is to purchase a lifetime benefit, statistics indicate that most people don’t require long-term care for more than three years. As a result, you can reduce your premium by choosing a limited benefit period. Inflation protection. For consumers who are in their 60s and beyond, another good way to reduce the premium is to decline inflation protection. Generally, older consumers are likely to use their benefits within a few years, so the risk of inflation is much less than it would be for someone in their 40s. For younger consumers, however, inflation protection can be a very important feature, as it is extremely difficult to predict the costs of long-term care insurance over a 20- to 25-year period. Low benefits levels. Consider a lower level of benefits and longer elimination periods. Just be careful not to choose levels that won’t cover the full costs of care and cause you to self-insure more than necessary. Deferred annuities. Many people have substantial assets in deferred annuities that can serve as a funding mechanism for long-term care coverage. Most annuities allow for a 10% withdrawal of assets each year without penalty. These withdrawals can be used to pay premiums for long-term care insurance while the remaining money in the annuity grows on a tax-deferred basis. Single-premium life policies. Another option to consider is a single-premium life policy that provides both death benefit and living benefits for long-term care expenses. By repositioning an asset such as a certificate of deposit or money market account, you can turn a taxable investment into tax-free benefits. You may also use the cash values of a paid-up life policy to fund the multi-purpose life policy by utilizing a Section 1035 tax-free exchange. Conclusion Long-term care insurance should not be viewed as nursing home care insurance. In fact, it is anti-nursing home care insurance. A nursing home is the last option to be considered, usually after home health care services, adult day care services and assisted living options have been exhausted. Long-term care insurance is truly an asset protection tool. Do yourself and your family a favor and contact your Schmidt Westergard & Company advisor about this valuable planning opportunity today.
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FINRA/SIPC Based in Mesa, Arizona, and serving closely held businesses in the East Valley, the Phoenix area and throughout Arizona, Schmidt Westergard & Company, PLLC, is an independent full-service tax, audit, accounting and business advisory firm focusing on the middle market. |