Advertisement
Long-Term Care Insurance

New Ways to Pay for Long-Term Care

These policies combine life insurance or an annuity with long-term-care protection.

In the aftermath of well-publicized premium hikes for long-term-care insurance and the departure of some key insurers from the market, many consumers are skittish about buying coverage. But the need for protection isn’t going away. The median cost of one year in a private room at a nursing home topped $77,000 in 2011, according to a recent survey by Genworth, and the cost is increasing at a rate of about 5% per year. Round-the-clock home care runs even more.

Advertisement - Article continues below

If you don’t want to buy -- or can’t qualify for -- standalone long-term-care insurance, here are three other ways to protect your retirement savings from the potentially devastating cost of long-term care. And if you don’t use the benefits for long-term care, the insurance goes toward a death benefit or an annuity.

Life insurance combo policies. Several companies have introduced new policies that combine life insurance and long-term-care protection. You invest a lump sum or pay premiums for a limited time, and you’re guaranteed to get either long-term-care payouts or a death benefit. For example, if a 55-year-old man invested $10,000 per year for ten years in Lincoln Financial’s MoneyGuard Reserve Plus policy, he’d have a pool of $320,000 in benefits to pay for long-term care, available as a monthly payout of $6,669 for up to four years. If he died without using the long-term-care component, his heirs would get about half of that -- $160,057 -- as a death benefit. Or, if he used some of the money for care, the death benefit would be reduced by the amount that was used to pay for his care.

Advertisement
Advertisement - Article continues below
Advertisement - Article continues below

These policies may be appropriate for people in their fifties and sixties who still need life insurance but who also want protection against long-term-care costs. Paying the premium all at once shields you from price hikes; some policies that you pay over ten years also guarantee that the premiums won’t rise. Long-term-care benefits are triggered when you need help with at least two daily activities, such as bathing and dressing, or you are cognitively impaired. You can receive care at home, in an assisted-living facility or in a nursing home.

Annuity/long-term-care policies. A few companies, such as Mutual of Omaha, offer a combination deferred an­nuity and long-term-care policy that allows you to leverage your investment three-to-one. For example, a $100,000 annuity could pay up to $300,000 in long-term-care benefits. These policies are attractive to people who already own a deferred annuity and want to exchange it tax-free for a combo annuity policy. And it may be easier to qualify for one of these combo policies than for a traditional long-term-care policy.

Advertisement - Article continues below

If you use the money for long-term-care costs, the distributions are tax-free. Withdraw it for other reasons, however, and you’ll pay ordinary income taxes on the earnings. Unused portions of the annuity (minus any long-term-care payouts) may be left to heirs.

Longevity insurance. This type of annuity pays out only when you reach a certain age -- usually 85. It’s a viable way to ensure that you won’t outlive your savings and to protect against long-term-care costs that often occur at advanced ages. Say you invest $100,000 in New York Life’s Guaranteed Future Income Annuity at age 65; starting at age 85, you’ll receive payouts of $67,000 per year for the rest of your life. You can use the money for any purpose, including long-term care.

Anyone may buy longevity insurance, regardless of their health status, so it may appeal to people who don’t qualify for stand-alone long-term-care insurance. The downside is that you won’t get anything if you die before age 85.

Advertisement

Most Popular

2020 Stock Market Holidays and Bond Market Holidays
Markets

2020 Stock Market Holidays and Bond Market Holidays

Is the market open today? Take a look at which holidays the stock markets and bond markets take off in 2020.
July 1, 2020
HSAs Get Even Better
Financial Planning

HSAs Get Even Better

Workers have more options with flexible spending accounts, too.
July 2, 2020
What Are the Income Tax Brackets for 2020 vs. 2019?
tax brackets

What Are the Income Tax Brackets for 2020 vs. 2019?

The IRS unveiled the 2020 tax brackets, and it's never too early to start planning to minimize your future tax bill.
June 20, 2020

Recommended

Applying for Disability Benefits During a Global Pandemic
insurance

Applying for Disability Benefits During a Global Pandemic

It can take months or even years to get approved for Social Security Disability Insurance (SSDI) benefits in the best of times. Needless to say, now i…
June 24, 2020
Pass Along Life Lessons With an Ethical Will
retirement

Pass Along Life Lessons With an Ethical Will

Create a legacy letter to communicate values, experiences and life lessons to your family.
June 9, 2020
Finding Affordable Health Care Now
insurance

Finding Affordable Health Care Now

The pandemic has caused millions of people to lose their jobs — and their health coverage. Here’s a guide to finding affordable insurance.
June 4, 2020
10 Best Financial Benefits for Military Families
savings

10 Best Financial Benefits for Military Families

Members of the military have a lot of special financial challenges that most people don’t encounter.
May 22, 2020