Long-Term Care Planning

You are watching this video while sitting up or laying down. Now imagine, you’re trying to move but you cannot. That is what needing long-term care services can feel like. ”52% of people turning age 65 will need some type of long-term care services in their lifetimes (1).” ”83% of care provided to older adults is delivered by friends or family members (1).” ”44.8% of applicants ages 70-79 are denied long-term care insurance due to health issues (1).” Not everyone applying for long-term care insurance get accepted. Having a long-term care plan can help us and our family when we cannot perform daily activities. Hi, my name is Tan and I am an independent CERTIFIED FINANCIAL PLANNER™ practitioner. Long-term care cost is one of the biggest expenses in our lifetimes.

Today we are going over:
- What is long-term care?
- What is long-term care insurance?
- How much does long-term care cost?
- How much does long-term care insurance cost?
- Long-term care insurance premiums and the tax benefits
- How can we qualify for long-term care insurance?
- What can we use long-term care insurance for?
- Strategies on how investors can mitigate this risk.
- Types of insurance products that can pay for long-term care services
- 2 big disadvantages of long-term care insurance products
- 3 main reasons why investors buy long-term care insurance policies
- Questions to ask ourselves to see if long-term care is right for us
- Popular Optional Policy Features
- 6 important steps in selecting a long-term care insurance policy
- And finally, what are the next steps

What is long-term care?
- Long-term care is someone taking care of us when we need assistance or supervision to perform basic everyday tasks which is called “activities of daily living.”

What is long-term care insurance?
- Long term care insurance is an insurance product that helps reduce or eliminate the cost of someone caring for us and helps pay for caring facilities, such as adult day care centers, nursing homes, special care facilities, etc.
- Long-term care insurance is different from health insurance, Medicare, and Medicaid.

How much does long-term care cost?
- The cost of long-term care will depend on where we live and how we want to receive care.
- Going to Asia to receive care is super cheap compared to being cared for in the San Francisco Bay Area.
- I have a client that pay $10,000 a month out of her pocket for a nurse to take care of her husband at home. They don’t have long-term care insurance because they thought they would never need it. By the time her husband needed care, it was too late to buy long-term care insurance because he is uninsurable.

How much does long-term care insurance cost?
- The price could range from $50 a month to $500 a month.
- Never let cost get in the way of getting a policy because a professional can design a policy to fit within your budget. That’s the easy part. Of course, we have to qualify for a policy.

Long-term care insurance premiums and the tax benefits
- Depends on how we are structured: as an individual, pass through entities, or corporation, and where the money is coming from to fund the long-term care insurance policy.
- The long-term care insurance premiums could be tax deductible and the benefit payout could be tax-free.
- Please note that there are limitations and we have to do it correctly to get the tax benefits.
- You can look into Internal Revenue Code § 7702B and Code § 213.
- This is something you should discuss with a qualified tax professional to learn more.

How can we qualify for long-term care insurance?
- We need to be certified by a doctor and cannot do 2 out of the 6 activities of daily living for 90 days or cognitive impairment.
- Cognitive impairment is when we cannot remember, cannot learn new things, cannot concentrate, or make daily decisions.
- Unable to perform 2 of the 6 activities of daily living (ADLs) for at least 90 days.
- Example of activities of daily living are:
Eating: we need someone to feed us.
Bathing: we need someone to give us a bath.
Dressing: we need someone to help us change our clothes.
Transferring: we need someone to help us move from our bed to our chair.
Toilet: we need someone to take us to the restroom.
Continence: we cannot control our elimination.

Why can’t we do these daily activities? It could be due to aging, an accident, after a surgery gone wrong, or other health issues.

What can we use long-term care insurance for?
- Let’s say we qualify and the insurance company pays out.
- Depending on the types of policy, the insurance company can pay our family members or anyone we assign to take care of us.
- It could be a personal care assistance, nurses, therapists, or other healthcare professionals.
- They can take care of us at our own home, adult day care centers, assisted living facilities, and/or nursing homes.
- What I have seen from clients qualified for long-term care insurance. If there is a living spouse, the insurance company pays the other spouse to take care of the qualified spouse. If the client has no living spouse, the mom or dad wants the insurance company to pay their daughter or son to take care of them at their home.

Strategies on how investors can mitigate this risk
- We can ask our family members to take care of us.
- Use our current money to pay for someone to take care of us. Then when we run out of money, we can sell all of our assets to pay for care.
- Medicare provides some benefits for long-term care but it’s very restrictive. Medicare covers only a maximum of 100 days of skilled nursing care, and only the first 20 days are covered at 100%. And we have qualify for Medicare. We must be at least age 65 to qualify for benefits (2).
- Medicaid is designed for people who have very limited resources to pay for long-term care. The biggest challenge is being able to qualify for Medicaid.
- Longtermcare.gov is a great site to learn more about Medicare and Medicaid in relation to long-term care services.
- Lastly, we can buy insurance product(s) to pay for long-term care. It could be an individual policy or buy into a group long-term care policy.

Types of insurance products that can pay for long-term care services
- Traditional long-term care insurance policy. Use it or lose it. We pay premiums, if we qualify for long-term care, the insurance company will payout. If we pass away or cancel the policy before we need long-term care, we will lose all the premiums paid. If there are return of premium or partial refund of premium long-term care insurance policies, chances are, the premiums are a lot higher compared to a traditional long-term care insurance policy. The disadvantages of a long-term care insurance policy are we could deceased before triggering care and our premiums could increase in the future.
- A hybrid product of life insurance and long-term care insurance. If we pass away, the life insurance company will give the death benefit to our beneficiaries. If we are living and qualify for long-term care services, the insurance company will give us the money to pay for care. This is the most popular product from my experience.
- A hybrid product of an annuity and long-term care insurance.

2 big disadvantages of long-term care insurance products
- We might not need long-term care.
- Opportunity cost on the premiums. Instead of investing in a long-term care product, we can do something else with the money.

3 main reasons why investors buy long-term care insurance policies
- Avoid being a burden to family members.
- Protect their assets they have worked so hard to accumulate.
- Don’t have to worry about taxes they could have avoided. What I mean by this is, if you buy a long-term care insurance policy and you qualified for long-term care, the insurance company will payout. If you are self-insured, you might have to sell your assets to pay for care. If you sell your house, anything above the exemption is taxable. If you have to withdraw from your retirement accounts to pay for care, money out of pre-tax accounts such as a 401(k), is taxable at ordinary income tax rates.

Questions to ask yourself
1. What is my long-term care plan?
2. If I cannot take care of myself, who will take care of me?
3. What difficulties will that person experience in having to step into this new role?
4. Do I have a living will?
5. Who will be my power of attorney?
6. What are my options regarding Medicaid?
7. How should my assets be titled?
8. What is my total net worth?
9. Should I use my current asset and/or buy a traditional long-term care insurance, a life insurance policy with a long-term care rider, and/or an annuity with a long-term care rider?

Popular Optional Policy Features
- Shared Care Rider. Shared Care Rider works like this, the husband has a policy and the wife has a policy. The wife qualifies for long-term care and uses all of her benefits. She is able to tap into her husband’s benefits. If she does not use all of the husband’s benefits, the remaining benefits stay with the husband when he needs care. Another example is, if the wife only uses a small amount of her benefits, her remaining benefit will go to her surviving husband.
- Inflation Benefit Rider. This rider allows the policy’s benefit to increase over time, with inflation. The increase can be simple or compounding. Simple is interest on principal. Compounding is interest on principal and interest.
- Partnership Policies. Long-term care insurance partnership policies allow individuals to protect their assets so they don’t have to spend down their assets to qualify for Medicaid coverage. Normally, the amount of the protected assets are equivalent to the policy benefits.

6 important steps in selecting a long-term care insurance policy
1. Financial ratings. We like working with A rated companies.
2. Medical underwriting. Understanding your current health can help us decide which company to apply with because some companies are better than others depending on your health conditions.
3. Discounts. Some companies offer discounts when two qualified people apply for coverage.
4. Premiums. You want to make sure the premium fit within your budget.
5. Coverages. Tailoring the coverages you would want if you qualified for long-term care in the future.
6. Coverage exclusions and restrictions. Truly understand the policy and take personal notes that you can understand when you review the policy in the future.

Next steps
If you are 50 or older.
- Find out how much long-term care insurance costs.
- See if you qualify.
- Ask what discounts you may qualify for.
- There is no cost or obligation to request for information.

You might not need insurance, but you should have a plan. Be sure to document your decisions, discuss them with your family, and complete any legal documents to ensure your wishes will be carried out in an appropriate manner.

Thank you for watching. This is Tan, your trusted advisor.

References:
(1) - https://www.morningstar.com/articles/879494/75-mustknow-statistics-about-longterm-care-2018-ed.html
(2) - https://www.medicare.gov/coverage/skilled-nursing-facility-snf-care
U.S. Code § 7702B - Treatment of qualified long-term care insurance - https://www.law.cornell.edu/uscode/text/26/7702B
U.S. Code § 213 - Medical, dental, etc., expenses -https://www.law.cornell.edu/uscode/text/26/213
Publication 502 (2017), Medical and Dental Expenses (Including the Health Coverage Tax Credit) - https://www.irs.gov/publications/p502

This material is for educational use only and does not constitute tax, legal, or investment advice. Information may be changed or updated without notice. Consult with a licensed professional regarding your personal circumstances.

Please do not excerpt or copy this information without prior consent from TAN Wealth Management.