By Mark Grunder, CFP® and Diane Brennan, JD
Many of the clients we’ve worked with through the years have viewed long-term care (LTC) insurance as a tertiary protection tool that plays third fiddle to life insurance and disability insurance. Most of these clients can, arguably, self-insure against the risks associated with LTC. However, even for those who believe they have sufficient resources to self-insure, LTC insurance is worth a second look.
There are three ways to cover the costs of long-term care: Medicaid or Medicare; out-of-pocket; and LTC insurance.
Among these choices, those who have not explored LTC insurance default to the out-of-pocket option, hoping they’ll never require care. There are some advantages to that strategy: you retain control of your assets; there are no required premium payments; and, there are no care restrictions. In addition, you may buy any level of care from any provider in any location, provided you can afford it for the duration of care, which is unknown.
There are disadvantages to paying out of pocket, however. You could deplete your assets, likely liquidating assets to fund the cost of care. This method would trigger an income tax or capital gains tax, and, in the event of an extended illness like Alzheimer’s disease, your legacy to your heirs would be significantly reduced.
Statistically, 70 percent of today’s 65-year-olds will require LTC at some point, so if your hope is to sidestep the need for care, you have approximately a 30-percent chance. Keep in mind the average length of time people need care is more than five years. With medical advances in care continuing to prolong life, expect the length of time people need care to continue to increase.
Medicare and Medicaid are likely unsuitable options for our clients because the scope of care they provide is narrow, short-term in structure, and covers only the truly destitute.
So, let’s talk about option three: LTC insurance. Insurance is the operative word here. Pay a premium, and you have contracted with an insurance company to pay a guaranteed benefit if an insurable event occurs.
The advantages of LTC insurance are:
- Guarantee of care resources, if needed
- Tax-free benefits
- In some cases, a money-back guarantee (many carriers now offer hybrid policies that have “return of premium or death benefits”)
When you consider the odds, we believe LTC insurance is an option worth understanding as you plan for your future and the legacy you would like to leave. Contact your Wealth advisor who will connect you with an insurance agent to learn more about LTC insurance, the many options available, and the advantages and disadvantages among policies and carriers.
About the Authors
Mark Grunder, CFP®
Senior Vice President and BB&T Wealth Regional DirectorMark is a BB&T Wealth Regional Director. He has more than 25 years of financial planning experience, has published articles on financial planning and is an active member of the Financial Planning Association. Mark has been with BB&T since 2005.
Diane L. Brennan, JD
Vice President, BB&T Wealth Insurance Strategist
Diane is a former practicing attorney and insurance industry executive who brought her experience to the financial services arena 15 years ago. She has extensive experience in retirement and estate planning, investments and insurance. Diane holds a bachelor’s degree from Eastern Michigan University and a juris doctor from the University of Toledo, College of Law.