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Your Vision · Our Team

Health Insurance Things to Think About for Retirement Planning

Long-Term Care Insurance: What it Is and What it Is Not

One of the largest risks to your retirement plan is the need for Long-Term Care. 69% of those turning 65 this year will need some kind of long-term care during their life, according to longtermcare.gov. Long-Term Care creates a cash flow issue. It is not an asset problem. The problem is not only what will it cost for residential care, which could be $60,000 to $100,000 annually, but also how to create the cash flow to cover the expense. The cash flow may end up coming from tax deferred assets and therefore generate increased income taxes and possibly Medicare surcharges.

Long-Term Care insurance provides a payment to you or to a place (assisted living, nursing home) if you can no longer take care of yourself. It is not necessarily a medical need but is a functional need. The term that is used to discuss a potential claim or need is “activities of daily living” or ADLs. If you cannot bathe, dress, toilet, transfer (walk, get out of bed), etc. you may be eligible for a claim. Usually, 2 or 3 of the ADLs cannot be performed to get the claim approved. Cognitive impairment is a condition that may be covered without meeting the separate ADL criteria. Typically, a plan of care is created by whatever agency you are working with and if a doctor approves it, your claim will be approved. Types of care covered encompass the spectrum of Long-Term Care which is the providing of custodial care; nursing home, assisted living, home care, adult day care, memory care. Long-Term Care insurance does not pay medical expenses. That is what Medicare and Medicaid do.

 

Types of Policies that May Provide Long-Term Care Benefits

Use It or Lose It - Traditional Long-Term Care Policies- Type #1

This means that you pay the cost of the policy, and unless you have a claim you will get nothing from the insurance company. Think auto insurance, it is just like that. Some companies will offer a return of the costs (premium) paid version, but you will pay a lot more for this type of policy. Policies can be either a reimbursement (pays the actual amount of the bill), or indemnity pay (will pay a stated amount in the contract). You can determine how much coverage per month you want, how long you want it to pay, and if you want the payments to increase to keep up with the costs going up over time (inflation). Remember, the more risk you put on the insurance company, the more it will cost you. That may or may not make sense. Everyone has to figure out what is best for them in their particular situation. An issue with these policies is that they have had a bad history of price increases, which has made them very unpopular.

Asset Backed Long-Term Care Policies- Type #2

These work the same as type #1 except that if you do not use the policy, there will be money left for yourself or your heirs. These policies allow you to leverage annuity or life insurance. With the annuity, you get the balance of the money in the contract if you do not use it for long-term care. If you do use it for long-term care, an income rider is used to provide guaranteed income for life that will help pay for the cost of care. You may even use some of it, and when you pass away your heirs will get the balance. With the life insurance, your heirs will receive the death benefit if you do not use it. If you do use it, a payment based on the death benefit amount will be paid out for the long-term care tax free. You may also cash out the policy for the cash value that is in the contract if you need the money for something else. The cost of the policy is guaranteed to never increase.

Life Insurance with a Chronic Illness Rider -Type #3

These policies have become popular in the last few years. The reason is that they offer a death benefit, the potential for better cash accumulation, and have less restrictions for use of the funds paid out on a claim than types #1 and #2. If you are an insured who has a Chronic Illness and have been certified by a licensed health care practitioner, as being unable to perform, without substantial assistance, at least 2 out of 6 activities of daily living for a period of at least 90 consecutive days due to a loss of functional capacity or requires substantial supervision to protect oneself from threats to health and safety due to severe cognitive impairment for this same period. The insured does not have to be in a licensed health care facility to receive payment. This is not a reimbursement plan or a disability policy. Once eligibility has been determined, benefit payments are made directly to the insured, tax free.

 

Original Medicare vs. Medicare Advantage

This is an especially important decision when you turn 65. Original Medicare Part A has been paid for over your working life through a payroll deduction. Medicare Part A (hospital insurance) covers inpatient hospital care, skilled nursing facility, hospice, lab tests, surgery, and home health care. Medicare Part B (medical Insurance) covers doctor and other health care providers' services and outpatient care. Part B also covers durable medical equipment, home health care, and some preventive services. Medicare health plans include Medicare Advantage, Medical Savings Account (MSA), Medicare Cost plans, PACE, MTM. Medicare does not cover everything. Some of the items and services Medicare does not cover include:

  • Long-term care (also called custodial care)
  • Most dental care
  • Eye exams related to prescribing glasses
  • Dentures
  • Cosmetic surgery
  • Acupuncture
  • Hearing aids and exams for fitting them
  • Routine foot care

I am not a specialist in this area, and I refer this area of planning to a qualified specialist. The gaps discussed above can be covered by a “Medigap” policy that is designed specifically to cover them.

What I have learned from listening to my client’s experiences.

Original Medicare Part B and D coverage costs adjusted for earnings. Income related monthly adjustment amount (IRMAA) is a phrase some of you have seen on your social security statements. The reason you see it there is because the Part B and D coverage expense is deducted from social security. Medicare Advantage is sold as an alternative to original Medicare. Medicare Advantage offers benefits and a lower cost potentially than original Medicare. However, claims can be more expensive and coverage more restrictive. After you choose Medicare Advantage, you cannot switch back to original Medicare without going through underwriting. What that means is you could be stuck with your Medicare Advantage plan when you find out it may not have been the best choice for you. It is important that you work with experts to make an informed decision before choosing a plan.

 

We have a network of specialists that we trust to help you make the right choices and can make sure the recommendations fit your plan.

 

Written by: Jay Weyers

Weyers McKeever Financial Partners

Your Vision · Our Team

 

TC120605(0421)1

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Not for use in CA and MA

Living Benefits may be provided by optional Accelerated Benefits Riders.

Riders are supplemental benefits that can be added to a life insurance policy and are not suitable unless you also have a need for life insurance. Riders are optional, may require additional premium and may not be available in all states or on all products. This is not a solicitation of any specific insurance policy.

Payment of Accelerated Benefits will reduce the Cash Value and Death Benefit otherwise payable under the policy. Receipt of Accelerated Benefits may be a taxable event and may affect your eligibility for public assistance programs. Please consult your personal tax advisor to determine the tax status of any benefits paid under this rider and with social service agencies concerning how receipt of such a payment will affect you.

Policy loans and withdrawals reduce the policy’s cash value and death benefit and may result in a taxable event. Withdrawals up to the basis paid into the contract and loans thereafter will not create an immediate taxable event, but substantial tax ramifications could result upon contract lapse or surrender. Surrender charges may reduce the policy's cash value in early years.

It is possible that coverage will expire when either no premiums are paid following the initial premium, or subsequent premiums are insufficient to continue coverage.

Guarantees are dependent upon the claims-paying ability of the issuing company.

The ability of a life insurance contract to accumulate sufficient cash value to help pay expenses or meet accumulation goals will be dependent upon the amount of extra premium paid into the policy, and the performance of the policy, and is not guaranteed.

Life insurance income riders typically have limitations and restrictions to exercising them, including but not limited to, minimum and maximum age requirements, years policy has been in force and minimum policy values.

Receipt of other policy benefits that reduce policy values may also reduce the ability to exercise the income rider.

Receipt of income benefits will reduce the policy’s cash value and death benefit, may reduce or eliminate the availability of other policy and rider benefits, and may be taxable.

Chronic Illness and Covered Chronic Illness riders allow for the payment of a portion of an insured’s death benefit, on a discounted basis, if the insured is Chronically Ill. A chronic illness is defined as one that leaves you unable to perform, without substantial assistance, two of the six normal activities of daily living for a period of at least 90 consecutive days due to a loss of functional capacity or requires substantial supervision to protect oneself from threats to health and safety due to severe cognitive impairment. The six activities of daily living include bathing, continence, dressing, eating, toileting, and transferring. There is no additional premium for this rider.

Accelerated Benefits Riders (ABR) vs. Long-term Care (LTC) Insurance

Certain states require advertising for ABRs to provide a comparison to the benefits provided by LTC insurance. However, Accelerated Benefits provided by the ABR riders are not long-term care insurance, and are not intended to be the same as, or an alternative to, long-term care insurance. This is a life insurance benefit that also gives you the option to accelerate some or all the death benefit in the event that you meet the criteria for a qualifying event described in the policy. This policy or certificate does not provide long-term care insurance subject to California long-term care insurance law. This policy or certificate is not a California Partnership for Long-Term Care program policy. This policy or certificate is not a Medicare supplement (policy or certificate).

ABR Riders are supplemental benefits that can be added to a life insurance policy and are not suitable unless you also have a need for life insurance. Receipt of benefits may reduce or eliminate the availability of other policy riders and benefits. Benefits available are calculated at time of claim based on the age of the policy and our expectation of your future mortality. The amount of Accelerated Benefit available will depend on your life policy’s death benefit value when ABR benefits are claimed. For policies in good standing, if ABR benefits are not used, policy death benefits and other rider benefits are still available.

Long-term care (LTC) insurance is not life insurance, and as such, has no death benefit or cash value. LTC insurance benefits are specified at the time of the contract. LTC benefits are paid as a form of expense reimbursement for qualified long-term care expenses. By comparison, for ABR benefits there is no restriction placed on the use of benefits received, they are paid once qualifications are met, and do not require you to provide receipt of specific expenses to qualify for the benefit. LTC premiums vary based on the level and length of benefit chosen by the policyholder. Premiums are paid on a recurring basis, and failure to pay premiums will generally lapse the policy. If LTC benefits are not claimed, they are typically forfeited. LTC insurance policies may offer non-forfeiture benefits for additional premium.

 

 

 

 

 

 

 


 

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