Purchasing Hybrid Long Term Care Insurance
If you are familiar with the way a traditional life insurance policy works then you understand that the policy will pay out a death benefit to any beneficiaries in the event of your passing. There are also some policies which will utilize this death benefit in order to payout or offer assistance while you are still alive, this is often a type of rider. Hybrid long term care insurance combine benefits from long term care insurance and combines then with the death benefit from payout from life insurance policies. These policies can provide relief in the case that you are unable to live and care for yourself. The payout will cover the costs of nurses, home aids, and even nursing facilities.
You should note that a hybrid long term care policy is often time costlier than your traditional long term care plan however, it may be better for you estate. If you wish to pass down your estate a hybrid long term care policy can save you from running through your estate and assets to cover the costs of your long term care.
How does it work?
Hybrid long term care helps preserve your assets. Having it in place can stop you from depleting your assets and estate. Since it will help pay for the cost of your care you will still have assets and an estate to pass down to your beneficiaries following your death. The traditional long term care insurance combined with this death benefit rider essentially bring you a hybrid long term care policy. In order to access these long term care benefits or rider you must be deemed as disabled by the insurer. This means that you are unable to perform at least two of the six daily activities of living(ADL)/ These activities include:
- Getting dressed
- Walking from one place to another
- Using the toilet
- bowel or bladder incontinence
You should note that although the long-term care rider pulls from the death benefit to cover the costs of your long term care, it does not typically any costs that would be covered by your health insurance. These costs typically include, prescriptions, surgeries, and routine visits.
The cost of care
If you find yourself no longer able to care for yourself and or/ perform any of the six daily activities of living, you will likely need long term care. This care can range from an upwards of thousands per year. Additionally, this type of care is almost never covered by health insurance. According to a well known insurance provider known as Genworth, these are the associated costs you can expect to see per year:
- Homemaker services- $51,480
- Home health aid- $52,624
- Adult day health care- $19,500
- Assisted living facility- $48,612
- Semi-private room in nursing home facility- $90,155
- Private room in a nursing home facility- $102,200
we must also take into account inflation which occurs each year. Due to this we should examine the estimated cost of care nine years from now as predicted by Genworth. You should note that the rise is significant:
- Homemaker services in 2029- $69,185
- Home health aid in 2029- $70,722
- Adult day health care in 2029- $26,206
- Assisted living facility in 2029- $65,330
- Semi-private room in nursing home facility in 2029- $121,161
- Private room in a nursing home facility in 2029- $137,348
When utilizing a long-term care rider to account for the costs associated with assisted care you should note that it will only cover the initial five years of that assisted living care. Following those years, you should expect to cover those costs using either your assets, traditional ltc policy, or medicaid. However as previously notes, traditional long-term care insurance policies can be costly in many aspects. Mainly they can often deplete your assets for care leaving you with nothing for your beneficiaries. Additionally, Medicaid requires you meet certain requirements to even qualify.
Medicaid & long term Care
Why doesn’t everyone use Medicaid to pay for their long-term care? Simple: it may not be an option for you.
One has to first qualify for medicaid and this requires that you earn below a specific income level. Additionally, you cannot exceed the maximum limit in owned assets. Applying for Medicaid requires you to provide documents detailing your finances over the past five years. These documents are later asses by the Department of Social Services. During this assessment or look back period they will determine if you meet the requirements for Medicaid benefits. You should note that they will also consider you previously owned or transferred assets in addition to your current.
A disability is similar to death in the sense that is often unforeseen or unexpected. Planning ahead for the unexpected or future long term care is the best way to protect your assets. Doing so can help keep you from having to deplete your assets when the situation arises. It is advised that you decrease your assets if you incur a disability. This will allow you to possibly qualify for medicaid when your five year care ride is up. To be deemed eligible for Medicaid, you’ll become familiar with the Medicaid spend-down:
More on Medicaid
If you do not qualify for Medicaid due to your assets you can spend them down. This can help you meet the medicaid criteria. Selling the assets would simple transfer the earnings to your worth. How to spend down:
- Pay off debt
- Gift and pay gift taxes
- Make home improvements
The key is to understand what is considered a countable asset and what is not.
When considering your medicaid eligibility countable assets are included in your asset count and must be under a certain figure. In other words you may need to spend these down.These include:
- Real estate
Non countable assets are not counted by medicaid and therefore not included into this calculation. You do not need to spend these down, these include:
- Personal belongings
- Funeral arrangements
- Ira or 401k
- Your home (varies)
The cost of long term care
The cost of a long-term care rider will vary by insurer. Insurers will consider age as well as various other factors when determining this cost. Various type of riders can often be added to your life insurance policy for a flat additional fee however long-term care riders are considered a separate offering. This additional offering can range from an additional $600-$800 per year, given it is purchased early enough. If purchased at a later age and state of health, the rider can become even costlier.
Hybrid life insurance long term care Options
The majority of whole life as well as guaranteed life insurance policies will offer you the option to add on a long-term care rider at time of initial coverage. In some cases you will find restrictions on the amount of coverage needed to qualify for each rider. When purchasing a hybrid long term care insurance plan you will want to shop around and compare at least three companies.
Given that you do not wish to opt for a hybrid long term care policy, you can still pursue coverage for a traditional LTC policy that does not have cash value, but will pay for home or facility care if it’s ever needed. Standalone long-term care insurance policies are sometimes a better option.
Given that your income level as well as your assets meet the eligibility requirement for Medicaid, Medicaid will cover the cost of your long term care. You should note that since Medicaid is a government sponsored program that means the government will also select where your care is provided and by who. This can limit your options for care depending on what you had in mind.
What that looks like
Look at is this way, say you are a resident of Michigan and you suddenly need long term care, Medicaid may have your care administered in a nearby state if it is less expensive. However in a situation where you had a five year ride that covered your care and you then qualify for Medicaid after its diminished, you can stay where you are. Medicaid cannot relocate you in this instance and will cover the full costs of your care right where you are.
The last option available to you is usually not advised. This option involves relying your savings or estate to cover the cost of your long term care. This can cause you to drain your estates and savings fairly quickly as you don’t know how long you might need care. Just note that a private room in a nursing could run you as much as $1,022,000 or more depending on they number years.
Protecting your assets
Simply put in order to protect or preserve your assets, you must plan ahead. Especially when planning for long-term care even if you plan to rely on Medicaid. Given that you will likely need to conduct at least a five year spend down before even qualifying for Medicaid. If you do not plan for this your application will likely get rejected if your assets are too high. On top of this “gifting” your assets within that five year time frame may still result in penalties.
Regardless of which route you opt for standalone long-term care policy or Hybrid, be sure to work with a financial advisor to form a concrete strategy well in advance. You want to be sure you are set up for the best plan for you and your family.
Who is hybrid LTC for?
If you plan or simply do live past 65, you will likely need long- term care after all, one in two Americans will. Typically the need for a hybrid long term care policy will most likely arise into your older years however, that is not always the case. A sudden disability or chronic illness can render even a young once healthy individual in need of long term care.
If you are one of many retired individuals then you may understand wanting to help your heirs financially while also accounting for the cost of your living and long term care. Essentially, you want to ensure you have enough money to live, use for long term care, and leave behind to those you love. If you are still working you may find yourself more focused on disability insurance however, adding this rider to your life insurance life insurance policy in addition to disability insurance plan is still the best plan.
This is best acted on when you are of younger age, seeing as how just like many other types of insurance, the price goes up with age. This is why even though you might not use the policy until 20 or 30 years down the line, it is best done this way. Not to mention if you hold off until you need to use the policy, often time you will not even be eligible anymore.
Consider the costs
The costs associated with long- term care for assisted living or even at home care are very steep and constantly rising. This is why having that plan in place before you need it, truly matters. If you don’t think you’ll qualify for medicaid–or are even just unsure–, hybrid long term care insurance may be a good option for you. It can provide the protection and peace of mind you need to afford your future care.
You should research and go over all of your options for future care and how to cover it. Work with a certified professional and do so as far in advance as possible. The earlier you act the more options you will have as well. Early actions also helps with affordability and preparedness when dealing with a long-term care policy. Whatever you decide is the best route for you, be proactive and don’t continue to put it off until next year.
If you or someone you love is interested in Long Term Care or Long Term Care Insurance be sure to visit: LTC TREE for more information.