Long Term Care vs. Retirement Income

With Americans living longer than ever before and remaining active at ages that were unthinkable a generation or two ago, the need to plan for old age and retirement becomes increasingly important. And an important part of this is planning for health needs. The US Department of Health and Human Services estimates that 70% of people of the age of 65 or older will need some form of longer term care during their lives. This care could be for a few weeks, a few months or could be permanent.

The cost of this kind of care can be greater than most people realize. For example a private room in a nursing home can cost $205 per day or over $74,000 per year. A home health aide will cost $25 per hour. These are major expenses and when they arise can throw financial planning for retirement out of gear, leading to severe financial hardships. In many cases, assets that have been set aside for retirement need to be compromised. There are today insurance policies that can protect you from these contingencies and because of the money back guarantee and income tax free death benefit that they offer, should be treated as a saving cum insurance tool that does not require cash outflow with no chance of monetary return.

This type of insurance policy is a universal life insurance policy with long term care benefits incorporated into it. Here’s how it works:

If There Are Long Term Care Costs: In many cases the policy can provide you with up to 5 times the dollars needed to reimburse long term care costs. The specified death benefit amount is used to cover long term care costs up to the monthly maximum as lain down in the policy. There is also an option or a rider to provide for coverage beyond the depletion of the death benefit.

If Long Term Care Costs Do Not Arise: If you do not require long term care the full death benefit amount remains intact. If only a part of the death benefit amount has been used to meet long term care costs, the balance remains available as death benefit. The entire available death benefit amount will go to your beneficiaries free of income tax and will not be subject to probate if anyone besides your estate is named as the beneficiary.

The Option to Change Your Mind: A Return of Premium Rider is available on both single premium as well as certain flexible premium policies. If you should decide to discontinue the policy, the premiums paid by you till that time will be returned to you, less any loans, withdrawals or benefits paid. The terms of the Return of Premium Rider will govern the terms of the refund.

Here’s an example of how this type of policy could benefit you. Suppose you have set aside $300,000 of you retirement portfolio to cover possible long term care costs. If you move $100,000 into a single premium policy, you could get up to $80,000 plus per years for 6 years to cover long term care costs. That totals to $480,000 or nearly 500% of the premium amount. If there are no long term care expenses, your beneficiaries could receive over $150,000 as tax free death benefit. In case some part of the death benefit is used for long term care costs, the remaining portion will go to your beneficiaries’ tax free. The exact amount to benefit available will vary from case to case. And if you should change your mind about the policy, you can request for return of premium, less any benefits paid, loans or withdrawals.

An insurance policy to protect you from long term care costs can give you all the protection you need while freeing up a significant part of your portfolio for use where greater returns may be expected.

The Lean New Reality Tarnishes Golden Years

The bad news: Many baby boomers are likely to get less money from Mom and Dad than they thought. The worse news: They may have to help their parents financially instead.

For years now, boomers have expected getting tremendous windfalls as their parents pass on. Many boomers, in fact, have been lagging in their savings and betting on big bequests, especially since many of them suffered big losses in 2008.

But for a growing number of boomers, things aren't going according to plan. The postwar generation is living longer and many are spending their savings along the way.

How much longer? Thanks to medical gains, a 65-year-old man has a 60% chance of living to age 80 and a 40% chance of reaching 85. For women, the odds are 71% and 53%, respectively. All of this has made the 85-and-over age bracket the fastest-growing segment of the population.

The result is that, as a group, boomers likely won't be getting as much of an inheritance as they hoped. Even worse, far from receiving a bequest, a growing number are tapping into their own savings to help their cash-strapped parents make ends meet.

For families, the result is often a lot of scrambling, dashed dreams, conflict and anger as parents and children try to come to grips with the lean new reality-and divide up a smaller pie.

Not surprisingly, many families are loath to discuss these issues. In addition to serving as a reminder of the older generation's mortality, a conversation about inheritance or Mom and Dad running out of money can provoke anxiety in parents. Many are uncomfortable disclosing the details of their finances in the first place, even more so when they're worried about disappointing their children.

Adult children, in turn, aren't eager to ask their parents about money for fear of coming across as greedy. Some feel guilty for thinking about their own financial needs at a time when parents could be facing steep medical or long-term-care expenses.

Nonetheless, financial advisers say, it is important for families to talk-if only to establish realistic expectations.

If parents anticipate running short of money-and if they and adult children are able to start a dialogue-there are several measures families can take. Among them: Have parents recalibrate their budgets, downsize to a smaller residence, buy an annuity or longevity insurance to lock in a lifelong income, or take out a reverse mortgage.

In situations where children have adequate financial resources, they can pay a parent's health-insurance premiums, purchase a long-term-care insurance policy for him or her, give a set amount of money each month or purchase the parent's home to generate cash for living expenses.

Before implementing any strategy however, talk with your financial and tax advisers.

If you are interested in learning more about long term care, disability, life, home and umbrella insurance, call Connie Prince at Allied Brokers. Connie is our in-house expert with 26 years of industry experience and strong relationships with major carriers such as Mercury, Travelers, CIG, Hartford AARP, Glenworth, Prudential and Banner.

Visit our website at http://www.alliedbrokers.com/ for information about all the types of insurance we offer. Or call 1-888-505-7988 for a free rate quote.

A version of this article appeared in the June 11, 2012 edition of The Wall Street Journal, with the headline: Counting on an Inheritance? Count Again...

Long Term Health vs. Long Term Care

Long term care (LTC) is not something we ever want to need- and it’s definitely not something we want to pay for. Nobody likes to imagine a day when they or their loved ones cannot walk, feed, bathe or dress themselves. And who among us has enough savings or home equity to pay $83,500+ per year for a nursing home? Keep in mind that the average stay in a nursing home is 2.2 years for men and 3.5 years for women. Even home health care costs are upwards of $21 per hour- that’s $46,000 per year if you needed an assistant an average of six hours a day.

But the sad reality is that only 8-10% of aging Americans who could benefit from LTC insurance have it.  Many will get hit twice by LTC needs. Without LTC insurance, they will exhaust their finances and themselves caring for a loved one, and then face LTC needs of their own years later. The average American life expectancy is 78 years- up 29 years from 1900. Add in all the advancements in gene-therapy and biotechnology and we will likely live into our 90s.

Life is terminal, but fortunately we can delay or reduce the need for LTC through preventative health. Right now- with exercise, proper diet, stress-management and other lifestyle choices, we can combat most adult-onset diseases. The top 12 preventable causes of death, according to a Harvard School of Public Health study, are:

• Smoking
• High blood pressure
• Overweight-obesity
• Lack of exercise
• High blood pressure
• High LDL cholesterol
• High dietary salt
• Low dietary omega-3 fatty acids
• High dietary trans-fatty acids
• Alcohol abuse
• Low intake of fruits and vegetables
• Low dietary poly-unsaturated fatty acids

Interestingly, three of the top ailments requiring LTC can be prevented or mitigated by healthy lifestyle practices:

Bone fractures. Older people don’t fall just because of carelessness. More often it’s due to arthritis pain, muscle loss, declining stability and strokes. Regular exercise, good diet and stress management can postpone or lessen the severity of these conditions.

Parkinson’s and Alzheimer’s disease. Learning and creative activity have been shown to improve memory, perception and mental agility- and even grow new brain cells. Exercise and diet can fight inflammation, which may be a factor in neurological disorders.

Heart disease. The Mayo Clinic recommends five practices to keep your heart pumping: quit smoking, exercise 30 minutes a day, avoid saturated and trans-fats, maintain a healthy weight and get regular health screenings.

Of course, this is easier said than done. So if you can’t give up the donuts and Doritos, or you’re just interested in learning more about LTC insurance, call Connie Prince at Allied Brokers. Connie is our in-house expert in LTC, disability, life, home, auto and umbrella insurance. With 26 years of industry experience and strong relationships with major carriers such as Mercury, Travelers, CIG, Hartford AARP, Genworth, Prudential and Banner, Connie will help you plan for the future and protect the ones you love.

Visit our website at http://www.alliedbrokers.com/ for information about all the types of insurance we offer. Or call 1-888-505-7988 for a free rate quote.

Information for this article was provided by Richard Samson, contributing editor to National Underwriter Life & Health Magazine, December 2011.