Amid skyrocketing costs, the question of long term care insurance is a major concern for most American families. The writing is on the wall. Over 70% of Americans over the age of 65% will end up needing long-term care at one point or the other in their life. Annual stay in a private nursing home room costs well over $90,000. Given these costs – which can easily deplete your household’s assets within just a few years – it’s negligent not to plan ahead for possible long term care expenses.

Long term care insurance options

Long term care insurance is a great way to insure against potential care cost so you can keep your peace of mind. However, this insurance can be relatively pricey, and there’s the chance you might never even use it. Strict medical underwriting means that thousands of applicants have their applications denied for the following reasons:

·        Having a family history with some kinds of cancer

·        Already using long term care or getting help with Activities of Daily Living (ADLs)

·        Having a medical history of strokes serious heart ailments, or neurological conditions such as Parkinson’s Disease

Elimination period – even if you have no pre-existing conditions and are qualified, many long term care insurers impose waiting periods because they do not wish to cover short term care needs. Also known as the elimination period, this is the period of time that you have to wait before the company starts paying out benefits.

This article compares long term care insurance with alternative solutions to help you make the best possible decision based on your financial circumstances and individual preferences.

1. Short term care insurance

Short term care insurance provides $50-$300 of daily long term care benefits for a period of 6-12 months. The premiums payable are typically less than you’d pay with a traditional long term care plan. Since coverage is only for a year and involves much lower premiums, many of the people who are rejected by traditional long term care plans fall back to this alternative. Short term care policies have no waiting period, which means you can start receiving benefits immediately the need arises.

2. Critical care or critical illness insurance

These are two types of health insurance that offer lump-sum cash disbursements to individuals who are diagnosed with serious illnesses such as cancer, heart attack, and stroke. Some major insurance companies offer critical illness or critical care insurance packages with daily or monthly benefits for continuing care and inpatient rehab. These benefits can last anywhere from 6 months up to 2 years depending on the specific policy terms. Critical care insurance is usually less expensive than traditional LTC coverage. For premiums as little as $110 per month, a 60+ year old citizen can receive up to $50,000 lump sum payment when and if illness strikes.

Many critical care insurance packages do not cover patients who have a known issue from past diagnosis. Coverage is only valid if the illness or injury is recent and previously unknown.

3. Annuities with long term care riders

Many applicants who are rejected by traditional long term care insurance may benefit by buying an annuity with a long term care rider. The Internal Revenue Service exempts money invested in an annuity with an LTC rider from taxation. This option gives you a stream of regular payments (monthly) that can be used specifically to pay for care if the need arises.

Medical underwriting for an annuity with LTC rider is less strict compared to conventional long term care policies. This gives applicants flexibility with regards to use of benefits. If the annuity owner does not need long term care at all, the accumulated value of the annuity can be redeemed and passed on to heirs. Annuities need to be bought upfront and require a lump sum deposit in return for monthly payouts over a specific period of time.

4. Deferred annuities for after retirement

Deferred fixed annuities are a valuable vessel for pre-planning long term care. This type of annuity is different from the annuity + life rider combination discussed above in that it is not exclusively designed to pay for long term care. Money invested in this type of annuity is deferred and later paid out in monthly disbursements during retirement. Say for instance, an American who is aged 60 years old may purchase a deferred annuity worth $100,000. When the individual reaches the age of 70 (after a 10 year deferred period), they’ll receive about $1,000 in monthly payouts. This gives the annuity holder peace of mind that if long term care is ever needed after retirement, then there’s money that can take care of the expenses.

Think of this as a smart way to hedge against future costs by putting aside money that’ll be paid out in monthly disbursements once a particular age is reached.

5. Life insurance with an accelerated death benefit rider

This is simply life insurance with an accelerated death benefit. Many permanent life insurance policies today, such as the whole life insurance, do offer this FREE rider. The LTC rider essentially allows the policy holder to take a part of their life insurance payout and use it to pay for medical expenses (inclusive long term care) while the are still alive. The death benefit is reduced by the amount used up for the long term care. Since no new money is being created here, this is not actually LTC coverage. It’s simply accelerating your death benefit.

6. Life insurance with an LTC rider

This is life insurance that has LTC benefits built into the policy, at an ADDITIONAL COST. These long term care insurance options provide a reserve of money that can be used to pay for long term care expenses. If the policy holder does not end up needing an LTC policy, then the policy pays out a death benefit to his or her beneficiaries. You can subscribe to a hybrid/combination policy by paying a single lump sum payment, or a series of large payments spread out over the course of a few years. Many policies allow the provision of getting your money back if you decide (at a later date) that you do not need the policy.

7. Sell your life insurance policy

You may sell your permanent life insurance policy and utilize the proceeds for whatever you want, including paying for long term care. The amount of money you obtain from selling the policy is typically more than what you’d receive if you surrendered the policy for its cash value. Keep in mind though that proceeds from selling a life insurance policy may be taxed, plus your beneficiaries will no longer receive a death benefit from the policy. It might also be tough to tell if you are getting a fair price. This kind of settlement is usually not available for term life insurance policies.

8. Pre pay for continuing care

Another alternative to traditional long term care insurance is to pre-pay into a Continuing Care Retirement Community (CCRC). The arrangement is to pay a lump sum amount to reserve a spot, and then monthly fees once you move in. Many continuing care communities are inclusive, which means your lump sum and monthly payments will facilitate whatever level of care you need. There maybe tax advantages for purchasing into a retirement community that provides lifetime care benefits.The risk here is that some CCRCs have run into financial troubles and failed to meet their obligations. It’s important that you conduct thorough research to select the right community. Keep in mind also that CCRCs may cost much more than traditional long term care insurance.

9. Plan long term care costs ahead with family

If you come from the type of family that takes care of its own, then you can openly discuss long term care arrangements. This means having an authentic deliberation about the implications of long term care, and what would work for everyone involved. The financial aspect is very important when having this conversation. LTC costs can run into hundreds of thousands of dollars, and you need to have enough assets to offset these potential expenses. Even if you set aside a future living place, keep in mind that you might need in-home medical care later in life. Some families prefer to invest in property that pays out rental income which could be used to take care of any medical care needed later.

10. Retire overseas

Medical tourism is rife in many parts of the world. Hundreds of thousands of Americans head abroad for various medical treatments. For some retirees, moving abroad is a permanent solution to long term care needs. Many foreign destination offer the advantage of lower costs of living, affordability of care, and many other benefits. Malaysia offers dignified, affordable care for senior citizens, while Mexico has many assisted living options. Some of the other top retire abroad destinations for the elderly include Panama, Costa Rica, Spain, Thailand, Peru, Portugal, Colombia, and Ecuador.

Pros and Cons of Long Term Care Insurance Options

Long Term Care Option	Pros	Cons
Traditional LTC Insurance	Pays for long term care if/when it’s needed Protects your assets LTCI benefits are not taxed Provides coverage for an extended duration (typically more than a year) Inflation protection can be procured	Policy only valuable if you need long term care (which is impossible to predict) Premiums may increase over time You’ll have to pay for care during the waiting/elimination period Strict medical underwriting can make it hard for some people to qualify
Short Term Care Insurance	Lower in price compared to traditional LTC policy Easy to qualify for	Not enough coverage if you need care for an extended duration (more than a year) It might make more sense to save money for several months of care than to pay year after year for a short term policy
Life Insurance Accelerated Death Benefit Rider	Death benefits will be reduced by the amount received for LTC coverage Usually no added cost for LTC coverage Policy can be cancelled without loss of premiums after the surrender charge period Benefits are guaranteed (no use-it-or-use-it concern) Underwriting is basic	Usually not available with term life insurance policies Some policies have caps that limit the amount of LTC coverage you receive (as a percentage of your death benefits) Premiums are paid over shorter durations of time compared to traditional LTC policies Premiums are not usually tax deductible
Life Insurance with an LTC Rider	Provides coverage for an extended duration (comparable to traditional LTC insurance) Underwriting is basic	LTC coverage available at an added cost Usually not available with term life insurance policies
Annuities with LTC Riders	Medical underwriting is less strict Exempted from taxation Can be passed on to beneficiaries	Large sum of cash required to invest
Deferred Annuities for Retirement	Provides regular stream of monthly payouts to hedge against future costs Tax deferred during the accumulation phase	Large sum of cash required to invest
Selling Your Life Insurance Policy	Proceeds are usually more than what you’d get by surrendering the policy for its cash value	Proceeds may be taxed Your survivors will no longer get a death benefit Can be hard to tell if you are getting a fair price Not available for term life insurance policies
Prepaying Into a Continuing Care Community	All levels of required care catered for Maintenance free living Peace of mind	One of the priciest retirement living options Some of these communities run into financial trouble
Plan Ahead With Family	Money can be invested elsewhere more profitably instead of paying LTC insurance premiums	Only possible for families with sufficient discretionary assets Hard to plan because there’s no predicting the possibility or likely cost of care May not be ideal for families with a history of health problems Could put a strain on the household’s assets and resources
Retire Overseas	Affordability of quality care Lower cost of living Adventure	Culture shock Language barrier Leaving family and friends behind

Charting the way forward

Pinpointing the best long term care insurance coverage options can be tricky. If you are buying insurance, comparing between various providers can help you find a deal that’s best suited for your needs. Click here to receive Free LTC quotes (no obligation) from the top blue chip carriers, delivered to you in an organized custom binder via FedEx. If you are not interested in insurance, a fee-only financial services adviser can help you get the clarity you need to settle on the right solution.