How much does Long Term Insurance Cost? (Part 2)

CA Medicare Announcement

If you haven’t checked out our article explaining what Long Term Insurance is, please be sure to check out Part 1. If you have read Part 1, welcome back to Part 2. In this article, we will discuss the cost of LTC Insurance.

Medi-Cal is the dominant source of payment for long-term care, followed by out-of-pocket payments by individuals and families.

Medi-Cal funding will be squeezed even more over time and the sad truth is, is that if you are low income with limited assets, you’re not a candidate for LTC insurance.

The Cost of LTC insurance varies based on many factors including:

  • The amount you purchase
  • The options you purchase
  • Your Age
  • Your Health

Article 5 of the California Insurance Code requires all carriers to offer an inflation rider to increase your benefit over time. Long Term Care Services are exceeding the Consumer Price Index and a benefit of $200 today ($6,000 per month) will obviously not be worth $200 in 20 years from now. A 3% Compound Lifetime Inflation Protection Benefit increases the $6,000 to $10,837 in 20 years and $14,564 in 30 years.  Other options are available too. After the inflation option, my personal favorite is the “spouse shared benefit’ which increases the premium about 15%. This is available for couples and really allows you to leverage your benefits as one person can access the other’s benefits, providing they leave one year for their partner. In the evet of their partner’s death the unused benefit rolls over to the surviving spouse. By the way, couples purchasing polices receive substantial discounts, about 30% with many carriers and an additional 15% discount for preferred health. The younger & healthier you are the less expensive your policy will be. Pulling an illustration for a current prospective client with one of my favorite carriers, I’m looking at John, a 64 year old male for $272 per month and Pauline, a 64 year old female for $440 per month. They are in preferred health and this is a 3 year benefit up to $6,000 per month. Options include:

  • 3% compound inflation
  • Spouse Shared Benefit
  • Waiver of Home Health Care Elimination Period

The Elimination Period is a time deductible. This policy has a 90 day elimination period, meaning that after the benefits are triggered your expenses for days 91-121 would be submitted to the insurance carrier on day 121 and you’d would get a check a week or two later. Since 70% of claims are for Home Health Care I find that many people like to have a zero elimination period for an additional 15%. Therefore, John or Pauline will be able to submit their home health care claim on the 31st day for reimbursement.

Benefit Multiplier

John & Pauline’s benefit is for three years but most likely will take them beyond three years. The three years is actually a benefit multiplier. They are looking at a $6,000 monthly benefit with three year duration or 36 months. $6,000 (36) = $216,000. They are in reality purchasing a $216,000 “bucket of money” that will be available for Home Care Benefits, Nursing Facility or Residential Care Facility. Most likely when benefits are initially triggered, you won’t need the entire $6,000 per month. For example, my dad only needed someone a couple days a week at first, then every day and lastly 24 hour 7.  If you only use $3,000 per month for the first year, than your benefits will go beyond the 36 months as the other $36,000 is still in your “bucket”. Since they purchased the inflation protection, that $216, 00 bucket of money will turn into over $390,000 in 20 years and over $524,000 in 30 years. Turning a $270-$440 per month investment into that bucket of money would require substantial risk. Remember that in the likely event that either John or Pauline goes on claim they can tap into the others bucket of money.

Are there tax deductions available? The benefits paid out through a long-term care policy are not taxed as income.  Also, most policies sold today are “tax-qualified” by federal standards. This means if you itemize deductions and have medical costs in excess of 7.5 percent (10% beginning 2019) of your adjusted gross income you can deduct the premiums from your federal income taxes.

If you have a business you can use business dollars to purchase your LTC Insurance.

Owners of C Corporations can deduct the actual premium for themselves, spouse, dependents and employees.

Self-employed business owners (Sole Proprietor, Partnership, LLC, S Corporation) may deduct 100% of the eligible premium for themselves, spouse and dependents. These were the eligible premium guidelines for 2017.

  • 40 and younger $410
  • 41-50 $770
  • 51-60 $1,530
  • 61-70 $4,090
  • 71 and older $5,110

Transfer some of the risk or most of the risk. Often people feel they have to get at least a five year benefit with a large monthly amount. Traditional long term care polices generally offer no more than a five year benefit and there are hybrid life insurance policies that can actually provide the insured with a Life Time Long Term Care Benefit Rider.  Depending on your financial plan and your risk tolerance level this can make sense. My concern is that often people feel that if they can’t eliminate the risk entirely than they may forego altogether. As stated above about 20% of LTC claims are more than five years, but the average woman’s claim is under four years and the average man’s is under three. Isn’t it better to transfer some of the risk to the insurance carrier than nothing?

Now that you’ve gotten a snapshot of what LTC Insurance is and the cost of LTC Insurance, is it right for you? Call our office at 1-800-356-3416 or fill out this contact form to get a LTC Insurance pamphlet, free at charge.