Filed Under:Health Insurance, Ltci

Financing long-term care needs with an annuity

Opinion

Photo credit: Stuart Miles
Photo credit: Stuart Miles

There’s no doubt people are living longer. Those age 85 and above are one of the fastest growing segments of the population. Consequently, insurable seniors, age 55 and above, represent a growing marketplace.

The downside of this aging population is that it may bring increased concerns; while there’s more time to accomplish goals, there are also increased risks of old age infirmity. The upside is increased longevity brings increased opportunities.

The question many of our clients face is how to fund the potentially devastating cost of long-term care. Insurance is one way to fund these costs, however, many individuals are reluctant to incur this cost, believing that long-term care insurance is for someone else. They see a need for it, just not for them.

Contributing to this attitude could be misconceptions about long-term care:

  • “The government will pay. I’m covered by Medicare, besides there’s Medicaid.”
  • “My family will take care of me.”
  • “I won’t go into long-term care, I’ll stay in my home, besides it’s cheaper.”

There all seem like good arguments but remember, people buy on emotion but are moved to action by logic. We have to help our client make an emotional purchase by providing a logical justification. So let’s examine what could be misconceptions about long-term care.

Fact vs. Fantasy

The government will pay….” The fact is Medicare won’t pay. Medicaid will pay, but are they prepared to deal with the price they have to pay? Medicare is a federal health insurance program for seniors who are over 65 and are eligible to participate as a part of the Social Security program. Medicare is designed to cover the costs associated with hospitalization and acute illness. It’s not a program designed to cover the costs associated with chronic care needs such as nursing home stays. And while you can look to Medicaid for long-term care needs the eligibility requirements for Medicaid requires you to be impoverished. So ask your clients, “Is that what you are planning, to spend down your assets you have spent a lifetime to accumulate so Medicaid can manage the years you have left?”

My family will take care of me.” We need to discuss with our clients the real issues involved with our family taking care of us‑the physical, time and financial demands associated with family caregiving. Will their spouse be physically capable of providing care at the age they might need it, and will their spouse have the physical strength to lift them off the bed should they be bedridden? Will family members have the time or money to provide elder care when the time comes? Will they have the temperament to do this? Is that what they want for their kids, their grandkids? The Family Medical Leave laws do permit time off to attend to these types of needs; however, this time off is without pay. Will their children or grandchildren be able to afford the lost pay? Is this what they would expect?

Moreover, the stress of having to attend to personal care needs such as bathing, toileting or dressing can have a negative effect on their family members.

I’ll stay in my home, besides it’s cheaper…” Not necessarily. While most of our clients would want to stay in their home, Medicare home-care benefits are designed for short-term needs. When more extensive services are needed is when the problems begin. Household help is often needed in addition to medical care and those services can run several hundred dollars or more a week. Should round-the-clock care be needed your client may need to hire more than one person. How long can they or their family be expected to cover these costs before they start depleting their assets? And any money used to cover these costs is not “earning” them money; it’s lost assets that could be used to build additional assets to help them manage in their home a little while longer or to have assets left for their spouse at their passing should the spouse need care later.

So while on the surface long-term care insurance is not the answer for everyone one, the stark realities of aging means long-term care could be an acceptable option for many of our clients. Unlike Medicare, long-term care insurance is designed to cover these costs associated with a chronic illness. Unlike Medicaid, your clients don’t have to become impoverished in order to have the benefits from a long-term care policy.

You client’s family members can concentrate on offering companionship and advocating on their behalf rather than fighting for care or services. Moreover, the benefits of many long-term care plans can provide the funds that will allow your client to remain in their home for a longer time while preserving their assets for their spouse in their later years.

At a time of record low interest rates, with many of your clients having their money in conservative investments such as certificates of deposit, now may be a time to offer a solution to the problem of how to pay for long-term care. Many of your clients have been afraid to tap into these funds because they were concerned about outliving their incomes. An annuity with payments keyed to the amount of long-term care premiums offers a solution. Placing the appropriate funds into an annuity could generate sufficient income to cover long-term care, nursing and home health care for them and with some policies, for their spouse.

So the question many of your clients face is how to fund the potentially devastating costs of long-term care. You have an option to offer them; the question is, Will you?

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