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Should You Buy Long-Term Care Insurance?

With nursing home costs in North Carolina exceeding $75,000 per year,  perhaps you worry about how to pay for long-term care costs in retirement. You’d like for your “rainy day fund” to last longer but you’re not sure how.

There are limited ways of getting assistance with paying for in-home or assisted living care. Neither Medicare nor Medicaid offer much help for home care or assisted living.

Buying the right long-term care insurance can help boomers and seniors worried about depleting their estate. Many of these policies cover care in the home or at an assisted living, as well as in a nursing home.

The biggest problems with traditional long-term care insurance are the premiums. First, insurance companies often increase premiums over time. Sometimes families who paid year after year for long-term care care insurance simply can’t pay the increased rates and drop their coverage. Then a few years later, the need for care arises and they are out of luck….their policy stopped because they stopped paying the premiums.

The other problem is that traditional long-term care insurance premiums generally have been “use it or lose it.” If you stop paying your premiums, you get nothing back. If you never need your policy, you don’t get anything back. Or if you do use your policy for just a few months of care and then die, nothing is returned to your family. Read your policy carefully to see if there is any guaranteed return of premium.

Some newer types of long-term care coverage avoid these problems. When you allocate a portion of your retirement savings to a contract that is life insurance based with long-term care riders you can avoid the problems mentioned above. Here’s what I mean:

  • You can purchase a policy that has  “full return of premium.” That means you can get back your entire premium if you want to discontinue the policy.
  • Your policy will have a death benefit for your loved ones. That means, if you don’t use your policy or if you only use a part of it, your family can get paid a death benefit that can be quite substantial. That death benefit is much higher than the amount that you initially put into the policy, even if you die a short time after buying the contract.
  • And the key benefit is that the long-term care care benefits (for home care, assisted living or nursing home care among other benefits) can continue for your lifetime for a guaranteed annual payment amount. If you prefer, you could decide instead not to pay any annual premium and still get much more in long-term care coverage than you put into the policy.

These newer type of long-term care contracts are worth a look. There are even options for one spouse to use money in an IRA that can provide long-term care coverage for both spouses. As an added benefit, if long-term care coverage is never needed, after 20 years the funds that were in that IRA can pay a death benefit that is tax-free. That can be a tremendous savings for children who would otherwise pay income taxes on every dime of the IRA (or Qualified Annuity) distributions.

Of course even if you have the money to buy one of these contracts, you can only do so if you’re healthy enough. That’s just another reason why you need to start planning young enough. However, these contracts are available for individuals up to age 80 if they remain in good health.

If you have questions about these types of policies, you can contact me at dtoman@elderlawfirm.com.

For more about long-term care planning for seniors, click here.

You also can research the North Carolina Department of Revenue’s long-term care insurance page,

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