You probably already know that the bottom has dropped out of the long-term care insurance market, with many companies leaving the market altogether. But you’re probably still worried about what will happen if you or your spouse should need long-term care. It’s expensive and paying for it out-of-pocket can easily deplete your entire nest egg. What’s a financially savvy person to do?
Here we present some alternatives to long-term care insurance.
- Hybrid Long-Term Care and Life Insurance Policy
- Permanent Life Insurance with a Long-Term Care Rider
- Permanent Life Insurance with Chronic Illness Rider
- Medicaid/Medicare to Pay for Long-Term Care
- Annuities to Pay for Long-Term Care
- Health Savings Account (HSA) to Pay for Long-Term Care
- Reverse Mortgage to Pay for Long-Term Care
- Pay for Long-Term Insurance Yourself
Hybrid Long-Term Care and Life Insurance Policy
As more and more carriers are exiting the (traditional) long-term care insurance market, the more companies are offering a new product, called hybrid long-term care insurance. The new product has become more and more popular among the consumers in the past years.
Sometimes these are called Asset-based policies because they usually require a large lump sum payment up front, although now some companies allow you to pay for up to ten years. The way hybrid long-term care insurance works is that you purchase a life insurance policy, say for $100,000. There’s a pool of money available for you to withdraw from should you need long-term care, say $400,000. If you need long-term care, you’ll have it covered and if you don’t, there will be a death benefit paid to your heirs which is probably slightly more than what you paid for the policy (say $120,000). If you need long-term care, these are an excellent value. On the other hand, not everyone has $100,000 available to pay for insurance.
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Permanent Life Insurance with a Long-Term Care Rider
You can purchase any type of permanent life insurance policy and add a long-term care rider. These must be purchased at the time you buy the insurance, though—you can’t just add a rider on later. This rider will allow you to access the death benefit to pay for long-term care while you’re still alive.
Long-term care riders generally come at a cost, while accelerated death benefit riders such as chronic illness rider are frequently added in for free. What’s the difference? You need to be diagnosed with a chronic illness that you are not predicted to recover from, or a permanent condition, to access accelerated benefits. Long-term care riders can be accessed for a chronic condition you are not likely to recover from that prevents you from taking care of yourself, such as dementia or Alzheimer’s. Learn more about the differences between long-term care rider and chronic illness rider.
One advantage of this strategy is that if you don’t need any long-term care, your beneficiaries still receive the death benefit from the life insurance.
Permanent Life Insurance with Chronic Illness Rider
Similar to long-term care rider, chronic illness rider can cover long-term care expenses, although its coverage is triggered only when you are diagnosed with a chronic disease, which means that you are not predicted to recover from. On the other word, you suffer from a permanent condition. Learn more about the differences between a long-term care rider and a chronic illness rider.
Chronic illness rider may be available free or with a charge in the permanent life insurance policies. You have to decide to include it at the point of purchase. You can’t add it after the purchase. Here are some popular companies offering chronic illness rider free: American National, United of Omaha, North American, Symetra, Lincoln Financial.
Paid chronic illness rider provides more comprehensive coverage and it may be worth an additional small cost. More companies offer chronic illness rider with an additional fee such as Lincoln Financial, Symetra, Protective, AIG, Prudential, Minnesota Life or Securian Financial, Brighthouse (formerly MetLife), Cincinnati Life, and Principal.
Medicaid/Medicare to Pay for Long-Term Care
Medicare will cover skilled nursing home care, if you are sent to a facility after at least a three day hospital stay. Medicare will cover the entire cost for up to 20 days, then for the next 100 days they’ll cover most of the cost. Many nursing homes will not accept Medicare patients, though.
Medicaid is how most people pay for long-term care, but to qualify, you have to have less than $2,000 in assets and have a low income. If you have more money than that, you’ll probably be spending most of it on long-term care, and then when you’re almost bankrupt, you can rely on Medicaid. You can’t transfer your money to your children or other family members, either—if Medicaid finds you’ve transferred money in the last five years, you’ll suffer penalties and delay being able to qualify.
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Annuities to Pay for Long-Term Care
An annuity is a stream of income you purchase from the insurance company, which you can then apply to long-term care. You’ll have to pay for the annuity in a lump sum, or at least a short amount of time, and you must be 80 years old or younger to qualify. The good news is that there is no medical exam and the underwriting is less stringent than for life insurance, so if you already have some health problems, an annuity might work. They might not cover the entire cost of long-term care, depending on how long you need care, but they’ll definitely help.
Health Savings Account (HSA) to Pay for Long-Term Care
You can deposit pre-tax money in a special account to pay for medical expenses. You’ll also earn tax-free interest on the account. You’ll need to be enrolled in a high-deductible health plan to qualify—check with your health insurance company.
Reverse Mortgage to Pay for Long-Term Care
If you have paid off your mortgage, you can take out a reverse mortgage to pay for your long-term care. However, this is a complicated strategy and it is only available as an option for those who are at least 62 years old. If you want to pursue this strategy, make sure to discuss the details with an investment and/or retirement advisor.
Pay for Long-Term Insurance Yourself
If you’re well off, paying for your own medical expenses out of pocket might work. Invest the money you would’ve spent on life insurance premiums in other investments and hope for the best.
Now that companies are fleeing the long-term care insurance market as fast as they can, you’ll have to consider other ways to pay for long-term care. Make sure you have a plan, though, because the odds are that you will need some type of long-term care in the future.