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A Comprehensive Guide to Long-Term Care Solutions

As you look forward to your retirement years, you’re probably not anticipating spending hundreds of thousands of dollars of your retirement nest egg on long term care. Sadly, that is a reality for some people who haven’t thought about how they might pay for such an eventuality. The good news is that there are some ways to pay for long-term care, should the need for it arise. Let’s take a look at some of the most common solutions to the problem of long-term care. 

Below is a summary of all solutions for long-term care:

Long-Term Care SolutionsHighlightsBest Companies – (Click on the links to read full review)
Traditional Long-Term Care Insurance 
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– The first product covered long-term care expenses. Offer flexibility and customization.
– Premiums and costs have increased tremendously.
– Many companies have exited the market
Mutual of Omaha
Genworth
Transamerica
National Guardian Life 
New York Life
Best Traditional LTC Insurance Companies
Hybrid Long-Term Care Insurance
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– If you don’t need long-term care, your family will receive a tax-free death benefit.
– More and more companies offer this product
– Premiums are more expensive than traditional LTC policy.
Lincoln Financial – Money Guard
Nationwide – YourCare Matters
Securian – SecureCare
OneAmerica  – Asset-Care
Pacific Life – PremierCare Choice 
New York Life – Asset Flex 
Best hybrid LTC Insurance Companies
Life Insurance with LTC Rider
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– Best solution if you need both permanent life insurance and long-term care.
– LTC rider is more expensive than chronic illness rider, but offers more flexibility and value
John Hancock
Nationwide 
Transamerica
AXA Equitable
Life Insurance with FREE Chronic Illness Rider
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– If your main goal is to have life insurance coverage, and want to add long-term care as an added benefit, this is the best solution for you. North American
– United of Omaha
Symetra
Life Insurance with PAID Chronic Illness Rider
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– A solution in-between long-term care rider and free chronic illness rider
– Chronic illness rider tends to be less expensive than LTC rider, but also offers less value
Minnesota Life or Securian Financial
Protective
Prudential
Lincoln Financial
American General
Symetra
Medicare or Medicaid
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– Medicare doesn’t cover long-term care
– Medicaid does cover long-term care, but not many people can be qualified without penalty
Reverse Mortgage  
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– If you have paid off most of your mortgage, this might work, but can be complicated. You should definitely discuss with an advisor before

Traditional Long-Term Care Insurance

Traditional long-term care insurance offers the most flexibility as customization goes. You can choose the elimination period, the benefit amount, the length of the benefit period. It’s also less expensive that hybrid long-term care/life insurance policies. The drawback is that if you don’t make a claim, you’re paying for benefits you never use. In other words, if you don’t need long-term care, you’ve paid a lot of money for premiums and gotten nothing in return. This has led some people to consider hybrid long-term care insurance

Traditional long-term care insurance has gotten a lot of criticism for rate hikes. Be aware of this if you purchase a policy.

>>MORE: The Best Traditional Long-Term Care Insurance Companies

Hybrid Long-Term Care Insurance (or Linked Policies)

Some people don’t like the fact that in traditional long-term care insurance, you may never use the insurance. Hence, the hybrid long-term care insurance policy was born. These types of policies are called linked policies. This allows a certain amount of money to be used for long-term care, if you need it. If you don’t need long-term care, the money goes to your beneficiaries as a death benefit. This appeals to a lot of people because they feel like either way, they haven’t wasted their money. Another huge advantage is that these policies usually have fixed premiums—no huge rate hikes as the cost of long-term care goes up. 

The disadvantages of this type of insurance are that it’s more expensive than traditional long-term care insurance. However, you may have an easier time finding a hybrid policy because while many traditional long-term care companies are leaving the market, hybrid polices have gotten quite popular. There’s even a return of premium option, should you change your mind. 

>>MORE: The Best Hybrid Long-Term Care Insurance Companies

Life Insurance Policy With a Long-Term Care Rider

If you’re really more interested in life insurance than you are in long-term care coverage, a permanent life insurance policy with a long-term care rider added may work for you. You do have to add the rider when you buy the policy—you can’t just decide to add one later. This offers all the benefits of a permanent life insurance policy—cash value you can borrow against and tax-free death benefits. If you use all of the money in the account, some companies will save $5,000 or $10,000 to cover final expenses. 

For a long-term care rider to be activated, you must have trouble with two out of six activities of daily living (ADL’s). They are:

  • Eating
  • Continence
  • Dressing
  • Toileting
  • Transferring (like from the bed to the toilet)
  • Bathing

You can also be diagnosed with a cognitive impairment such as Alzheimer’s or dementia. Unlike chronic illness riders, you can receive long-term care benefits for a temporary condition. It just has to last longer than the elimination period or waiting period. 

Long-term care rider will increase the premiums of your policy, although not significant. Here are the insurance companies offering long-term care rider in their permanent life insurance policy: John Hancock, Nationwide, Transamerica, and AXA Equitable. The monthly long-term care benefit is usually from 2-4% of the death benefit of the policy.

>>MORE: Long-Term Care Rider vs. Chronic Illness Rider: How Are They Different?

Life Insurance With a Chronic Illness Rider, either FREE or PAID

This is similar to a long-term care rider, but the qualifiers are different. Both are accelerated death benefit riders—that is, a portion of the death benefit can be made available to you before you die. Once you are diagnosed with a qualifying illness, you can tap into the death benefit. These riders are always cash indemnity—that is, the insurance company pays you a portion of the death benefit in cash every month. What you do with it is up to you. If you want to bet it all on the blackjack table, you can do that. 

Chronic illness riders kick in when you are diagnosed with a qualifying illness, which is something you cannot (typically) recover from. Long-term care can be applied if an illness is temporary, or something you’re likely to recover from (a broken hip, for example). 

Chronic illness riders may be either free or cost an additional amount, which is added to your premiums. 

Companies offering free chronic illness riders:

  • American National
  • United of Omaha
  • North American 
  • Symetra
  • Lincoln Financial

Companies offering chronic illness riders for an additional charge:

  • Lincoln Financial
  • Symetra
  • Protective
  • AIG
  • Prudential
  • Minnesota Life 
  • Brighthouse
  • Cincinnati Life
  • Principal

Does Medicare or Medicaid Pay For Long-Term Care?

One reason why many people fail to obtain long-term care solutions is because they believe that Medicare will take of that. Medicare doesn’t cover much in the way of long-term care. They will cover a short stay in a nursing home if you had a recent hospitalization lasting at least three days, or if you need skilled care. Any non-medical care, such as bathing and dressing, is not covered by Medicare.

Medicaid, on the other hand, is a state and federal program that provides coverage for low-income people. It actually does pay for most long-term stays in nursing homes, but only if you meet certain requirements. You must need skilled nursing home care, and you must meet asset limits, which are based on poverty guidelines. States can vary, but you must have less than $2,130 a month in income, which isn’t bad. However, you must also have less than $2,000 in liquid assets. Many people try to transfer their assets so that they can qualify, but there is a “look-back” period of 60 months. Any money transferred within that time will incur penalties, with more money transferred equaling a longer penalty. It also depends on how much nursing home care is in the state where you live. 

There are many problems with relying on Medicaid for long-term care, just a few being:

  • If you transfer your assets to your children, it is now their money and they could lose it or spend it all
  • Only some nursing homes accept Medicaid patients. You may not have a choice in where you go
  • Medicaid will not cover home health aides–if you’d rather stay in your home as long as possible, you’ll need a different strategy
  • Medicaid will not cover assisted living

Medicaid is probably not ideal when you’re trying to figure out your long-term care strategy. It’s tricky, and if it’s something you’re considering as an option, you should consult with a lawyer specializing in elder law. 

Reverse Mortgage to Pay for Long-Term Care?

If you own your home, you could covert the equity in your home into cash. Then you can use it to help pay for your long-term care costs. These are only available to those 62 and older, and they can be expensive and difficult to understand. Again, if you are considering this route, consult with a financial advisor or an attorney. 

Last Thoughts

No one likes to think about long-term care, and no one likes to ponder how they’ll pay for it, should they need it. Hoping for the best is tempting, but for better peace of mind, plan how you will pay for long-term care now.

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