05 Jun Pros And Cons For Long-Term Care Insurance

What are the Pros and Cons of Long-Term Care Insurance?

There are several advantages and disadvantages to consider when deciding whether to purchase long-term care insurance. We have compiled a list of pros and cons that cover the most important points to consider when deciding whether long-term care insurance is right for you. Ultimately, it comes down to your specific needs, priorities, and future goals. 

Pros of Long-Term Care Insurance

Making the decision to get long-term care insurance is a big one, here are the top advantages of long-term care insurance:

• In-Home Care Assistance
• Quality of Care
• Protection of Assets
• Preservation of Estate
• Tax Benefits
• Independence
• Peace of Mind

1. In-Home Care Assistance

For certain people, the ability to have in-home treatment is the most important advantage of long-term care benefits. In-home care, assisted-living centers, nursing homes, and adult day care are also covered by long-term care insurance. 

The majority of aging seniors, however, choose in-home treatment over going to an assisted living center or nursing home, so this coverage is well worth it. So, do you want to stay in the safety of your own home or be moved to another location? This top advantage makes long-term care insurance a no-brainer for most people.

2. Quality of Care

Many individuals choose to self-insure rather than purchase long-term care policies. And for certain people, that might be a reasonable choice, especially if they never require long-term care. Self-insurance, on the other hand, does not always work out. Opting for this route, most will end up with very little funds to set aside for retirement. 

Then, when you – or your family or caretaker – need long-term care, you – or your family or caretaker are required to find another option that works within your budget limits. This choice is often less than desirable. Not only could you end up spending the rest of your life in an atmosphere that you hate, or in a situation that renders you helpless. 

The choice is to have long-term care insurance, which will ensure your continuity of treatment. In addition to providing the ability to either get at-home care or spend out your days in a high-quality long-term care facility. And, let’s face it, not all long-term care services are created equally.

3. Protecting Your Assets

Long-term care insurance premiums can be very high. A 60-year-old man, for example, would pay about $3,200 per year for a policy that pays a regular benefit of $200 for 60 months. However, once you do the calculations, this option could make complete sense for your needs and future. 

Using this example, a 60-year-old man who paid into a policy for 15 years before he reached the age of 75 will have paid about $48,000 in premiums over that period. Assuming he is now eligible for a long-term care insurance claim, at a daily payout of $200 per day, or $6,000 a month.

He would have recouped his premium deficit in as little as eight months. The estimated duration of stay in a long-term care facility is 2.5 years. Therefore, the gross payment received from long-term care insurance will be $180,000. This more than makes up for the $48,000 paid in premium fees. 

Additionally, the Long-Term Care Partnership Program protects those assets held by the insured. For example, if you have paid $20,000 in long-term care premiums for Medicaid-related costs, you will keep about $22,000 in assets as the policyholder spouse. And as a non-policyholder healthy spouse, about $142,000. 

4. Preservation of Estate

We have estate security, which is similar to asset conservation. We shouldn’t just think about how much money we can theoretically save with long-term care insurance. We should also think about an additional benefit of long-term care insurance – estate preservation.  

Assume you want to leave your home to your children. You don’t want to sell because the value of your house has increased significantly. Rather, you hope to pass any wealth or asset down through your children, giving your children a leg up in essence. 

However, what if your only choice for paying for long-term care is to liquidate your estate, which includes your house? Not only would your children be denied your house as part of an inheritance, but the leg up will also be lost. More so, there would have been significant tax savings included in passing down the estate.

Consider this scenario: you spent $100,000 on your house several years ago. It is now worth just over a million dollars. Under the new tax legislation, part of the appreciation of your house will be taxed over your $250,000 home sale deduction. Here’s how it works: $1,000,000 minus $100,000 results in a taxable income of $900,000. $900,000 less the $250,000 home sale deduction ($500,000 for couples) equals a 20 percent taxable income of $650,000, or $130,000 in taxes due.

That said, if you were to leave your estate to your children, they will earn a step-up in basis based on the home’s value at the time of your death. As a result, when the beneficiary sells your estate, they will owe taxes based on the appreciated value from the time of the policyholder’s death. Not the initial purchase price. 

Here’s how it works: Your home is valued at $1,000,000, with a $1,000,000 step-up in basis. Since collecting it as an inheritance, the beneficiary children sell it for $1,000,000, resulting in no taxes due.

5. Tax Benefits

Even if the reimbursement surpasses the per diem cap, reimbursements of actual costs are typically not taxable as income. On the other hand, payments collected in excess of the maximum tax per diem or real costs charged are likely to be taxable as revenue. The new per diem limit set by the IRS for 2020 is $380 per day, or $138,700 annually. 

Premiums That Are Tax Deductible 

The premiums you pay for long-term care plans can also be tax free. When you are older than 60, but not older than 70, the limit you can subtract is $4,350 per partner. This equals a total potential deduction of $8,700 per household if both marriage partners have a long-term care insurance policy. 

Premiums for Health Savings Account and Long-Term Care Insurance 

You will also be eligible to cover your long-term insurance premiums using funds from your Health Savings Account (HSA). If you are 50 years old, but not older than 60, you can use up to $1,560 of your HSA. If you are between the ages of 60 and 70, you can use up to $4,160 of your HSA. Once you are 70 years of age or older, you can use up to $5,200 of your HSA. 

6. Independence

If able, it is quite liberating to know that you can think independently and make your own choices. Alternatively, you can specify your long-term care preferences in your Living Trust. When it comes to long-term care insurance, you have the choice of receiving long-term care services at home, in a nursing hospital, or in an assisted living facility. 

Other advantages of long-term care insurance include home upgrades to ensure that your home is fitted and capable of fulfilling your changing health and lifestyle needs. Also, there are some long-term care insurance policies that provide training for potential caretakers, whether family members or friends, who choose to take care of you. This provides assurance that you are cared for by those who love and care for you. 

7. Peace of Mind

Long-term care insurance gives you the assurance that you can have long-term care coverage if you need it. Far too often, even the best of care plans fail to materialize. You may believe you can “self insure.” However, most people never get around to doing so. 

Instead, most people find themselves in a position where they have waited too long to obtain insurance. They may feel they are either unable to pay the high premiums due to their age or they may have a health problem that disqualifies them from long-term care insurance coverage. The safest long-term care insurance strategy is one that you adopt when you need it the most. 

Cons of Long-Term Care Insurance 

Along with the benefits of long-term care insurance, there are certain disadvantages that must be considered. The top disadvantages of long-term care insurance are:

• Cost of Insurance
• Increases in Premiums
• Eligibility Requirements
• LTC Isn’t Needed
• LTC Confusion
• Exclusions

1. Cost of Insurance

If you feel it is too expensive, long-term care insurance will not be worth it for you. And it will only get more expensive as you grow older. In addition, since women outlive men, the premium would be higher if you are a woman. So, you need to consider if, and how, you can save money on long-term care premiums. 

One way to save money is to get insurance now rather than later. Down the road, you will obviously be older, potentially have pre-existing illnesses, and the premiums will be higher.  Another way to save money is to look for exclusive offers. A spousal discount could save you up to 15% on your long-term care insurance premiums if you and your partner both have policies from the same insurance provider.

An additional option to save on long-term care insurance is to change the benefit multiplier, also known as your benefit period. With a shorter benefit period, you will see lower premiums. So, to save money on your long-term care insurance, you should select a 36-month benefit period rather than the more costly 60-month benefit period. 

Finally, you have the option of adjusting the maximum benefit you would receive to a high or low value. If you adjust your maximum benefit amount to a lower value, you may find that the premium of your long-term care insurance policy becomes more affordable. 

2. Increases in Premiums

Although long-term care insurance is “guaranteed renewable,” this does not indicate that the premium will remain stable. Standard long-term care insurance premiums, which do not have a life insurance component, are shown to increase throughout the course of history. 

Spikes in premium costs have largely been triggered by a sustained period of low interest rates. This has placed pressure on long-term care insurance providers, causing them to increase rates for certain categories or “sections” of insureds. It is important to remember that premiums must be raised for a “class” and not for individual policies.

In today’s world, insurance providers have additional resources to pull from during the underwriting process of developing specific insurance policies for the policyholder. Because of this, newer policies are less likely to have spikes in premiums at the same rate seen with older policies.

There is an alternative option that policyholders can choose besides the traditional long-term care insurance plan. One route they can take is to obtain a life insurance policy with a long-term care rider. This type of policy is referred to as asset-based long-term care life insurance. These types of policies are offered with fixed premiums and can be purchased as limited pay life insurance. 

A Limited pay life insurance policy requires you to pay premiums into a policy over a fixed amount of time, such as a number or years or before you reach a certain age. This means that premiums are no longer required to be paid once the policyholder reaches the designated years or age defined in the policy. But, benefits will continue to be paid to the policyholder for the remainder of their life. 

One of the benefits of hybrid long-term care insurance plans is that you will get long-term care insurance if you need it. You also get the cash value component. This can be used in the life and death benefit payout to the designated beneficiary when the policyholder passes away. 

3. Eligibility Requirements

Long-term care insurance, like most types of insurance, demands that you follow certain requirements. If you have a history of pre-existing health conditions, the insurance could be too expensive. Therefore, if an individual can’t afford this type of policy, it’s not worth finding coverage in this form. Further, tobacco users pay a higher premium than non-tobacco users. So, even though you may want long-term care insurance, it’s possible that you won’t be able to get it. Also, the likelihood of being turned down for coverage increases the older you get. 

4. LTC Isn’t Needed

Another downside to conventional long-term care insurance is that you may never use the coverage you have paid a lot of money for. According to insurance experts, the older you get, the more likely you are to need long-term care. People aged 85 and over have a 55 percent likelihood of requiring long-term care. However, some people are fortunate enough to beat the odds and never need long-term care. 

Hybrid Policy (Life Insurance with a Long-Term Care Rider)

A combination of life insurance and long-term care is an alternative for prospective policyholders. Long-term care insurance, a death payout, cash value accumulation, and a potential premium refund are all included with hybrid policies. 

A hybrid policy is the prime choice if you are interested in long-term care insurance but are worried about the “use it or lose it” nature of the traditional long-term care policy. Most people claim that hybrid long-term care insurance policies are advantageous because they offer either a long-term care benefit or a death benefit.  

5. LTC Confusion

When you start the research process into long-term care insurance, it’s difficult to not feel overwhelmed. The sheer volume of information to analyze may stunt your progress in acting. There is a way to reduce any anxiety or confusion felt in the beginning. Call an insurance expert to guide you through the process of making an informed decision. In doing so, you may discover there are more affordable options in paying for long-term treatment

6. Exclusions

A standard long-term care insurance does not cover every condition. There are some exclusions to be mindful of. Some long-term care insurance exclusions include:

• Alcoholism
• Drug Addiction
• Attempted Suicide
• Intentional Self-inflicted Injuries
• Declared or Undeclared War or Acts of War
• Involvement in a Riot, Felony, or Insurgency
• Service in the Armed Forces
• Aviation Activities; outside of fare-paying passenger

Final Thoughts

Long-term care insurance allows you to protect your independence while also allowing you to afford high-quality care. Additionally, your family can cope with the financial and emotional stress that’s often associated with events surrounding long-term care of a loved one. Whether or not you purchase insurance, you will still want to have a plan that. This ensures you – as the policyholder – and your family knows what to do if the situation were to arise.