I received a call recently from a reader, a senior who wanted to talk about the best way to address the frightening prospect of paying for long-term care. She is perfectly healthy now but knows that this could change in a heartbeat. And she wants to pay for it in a single premium.
Fortunately, she has some assets, including cash and some fixed annuities that have accumulated tax-deferred interest. The cost of addressing LTC insurance generally rises with the age when insurance is obtained.
We sat down together and talked about three different vehicles: standalone LTC insurance, an LTC-linked annuity and a LTC-linked life-insurance policy. Each has advantages.
The stand-alone policy has the advantage of being part of the Ohio Partnership Plan. To understand that, know that many LTC recipients eventually spend all their assets on their care and eventually turn to Medicaid for ongoing coverage. In fact, Medicaid insists that one impoverish oneself (spend down) before it will agree to pay for ongoing care in the nursing home. But if one has a Partnership Plan, it is possible to protect some assets from that rule and to keep something for the future or for one’s heirs.
The amount of benefits provided in the stand-alone Partnership Plan equals the amount of one’s assets that can avoid having to be spent down before Medicaid will cover the person. For example, if the plan provides $300,000 of LTC benefits, one can protect $300,000 from having to be spent down.
This makes such stand-alone plans attractive. Unfortunately, if you do not use the benefits, you have wasted your money. There is no refund feature. And premiums for most such policies that people own have been increasing, some dramatically. They cannot be paid for with a single premium.
The LTC-linked annuities that I have seen usually require a single premium to work effectively. An existing annuity can be rolled over tax-free (1035 exchange) to an LTClinked annuity. But the full LTC benefits are not available until the cash in the annuity has grown over time. Additional premiums are not required. And, if LTC benefits are never needed, the cash in the policy is available for lifetime withdrawals or for a death benefit. It does not participate in the Partnership program.
The LTC-linked life-insurance policy provides a death benefit that can be fully drawn upon for LTC needs. Any death benefit not drawn out for LTC will be paid to the beneficiary tax-free at the insured’s death. It can be purchased with a single premium or even periodic premiums as frequent as monthly. Later, if one wishes, the payment frequency can be modified. But the amount of the premium generally does not increase. I have not seen an LTC-linked life policy that qualifies for the Partnership Plan. An existing life-insurance policy but not an existing annuity can be rolled tax-free into a LTClinked life-insurance policy.
With the life-insurance approach, regardless of the manner of payment, the full LTC benefit and death benefit are available from the first day, even if just one monthly premium has been paid. Here someone, either the insured, the beneficiary, or both, will get the full benefit. If the owner is healthy enough to qualify for life insurance, I believe that this is the best way to address LTC needs.
J. Brendán Ryan is an East Walnut Hills insurance agent. Reach him at firstname.lastname@example.org or 513-221-1454.