Senior Advocate
Published in the Monterey County Herald 4/1/2018
Keep the long-term care policy or stop paying?
Q. We have had a long-term care policy for almost 20-years and have continued to pay the premiums. In the last three-years, we’ve received two substantial premium increases. What should we do? Keep paying or let it lapse?
A. The decision of whether or not to continue paying premiums on your long-term care policy can only be made after considering your personal financial situation but, let me offer some information about today’s long-term care insurance market.
Some 20-plus years ago, many insurance companies offered long-term care insurance but, over the years, smaller companies became insolvent and went out of business. Today, there are only a few large insurance companies providing this kind of insurance. At this point, you have a plan and, generally speaking, the older long-term care policies have better benefits than the newer ones. So, if you can afford the premium, I recommend you keep it. Long-term care expenses are so high that, in most cases, it will take only six months of care for you to “break even” in a policy – meaning all the money you paid into the plan has now come back to you in the form of benefits.
New and innovative plans are being offered today that can take the “sting” out of making premium payments or may obviate the need to pay premiums at all!
For example, you may consider a single-pay, asset based policy: In today’s low interest environment, if you have a large chunk of cash in a low paying deposit account, you could consider purchasing a single-pay policy that offers lifetime benefits for you and your spouse and, if you end up not needing long-term care, a life insurance component that will pay out a death benefit to a beneficiary. You essentially get your one-time premium back in either care benefits or life insurance.
If you do not have $100,000 or so languishing in a low-interest account, the same type of policy can be purchased over time. For instance, the premium can be spread over a 10-year period and then it is “paid up.”
If you have a pre-existing annuity that you bought some time ago, most likely there is a build-up of gains in the annuity which you will need to recognize and pay tax on when you begin to draw out the cash. You can use this annuity to “roll” into one of these long-term care policies and not be forced to recognize the gain and pay taxes – ever.
Traditional long-term care policies are still being offered where you pay a monthly or annual premium and would provide a monthly benefit to apply toward care expense along with a smaller cash distribution for other expenses. These policies often have a cap on lifetime benefits and do not have the life insurance component.
California and other states are understandably concerned about how the costs of senior care will be addressed since the burden would be borne by the State if we cannot personally cover the cost. California has established a partnership with several companies to make long-term care insurance more affordable and available. Speak with a Certified Financial Planner or go to RUReadyCA.org or call (916)552-8990 to explore what options might be right for you.
Liza Horvath has over 30 years’ experience in the estate planning and trust fields and is a Licensed Professional Fiduciary. Liza currently serves as president of Monterey Trust Management. This is not intended to be legal or tax advice. If you have a questions call (831)646-5262 or email [email protected].