For many years my clients would tell me that they regretted not having purchased long term care insurance (“LTCI”) when they were younger, could afford it, and were insurable. While it is true that hindsight is 20-20, having LTCI does not guarantee you will have a need for it as you age. For example, you could pay the premium for a LTCI policy for 25-30 years, and pass away in your 90s without ever having received the benefits from the LTCI policy. Unless one has purchased a hybrid LTCI policy (one which has both a death benefit and a long-term care benefit), LTCI is a lot like having auto insurance. It is only useful if an individual goes into a nursing home, needs home health-aide assistance and is unable to perform 2 out of 5 activities of daily living. There is certainly a population of individuals that have this need and use their LTCI to its full extent, but there is also a large portion of LTCI policies purchased and but never utilized.
I can personally attest to this as both of my parents, with my encouragement, purchased LTCI over 20 years ago; and religiously (but not happily) paid the premiums. My father is now 92 years of age and needs some limited assistance with activities of daily living. He is using his policy to assist with his care costs, but if the coverage is not used in full, which it likely will not be, the remaining benefits are lost. If you don’t use it, you lose it! Alternatively, if one purchases a hybrid policy which combines the benefits of long-term care and life insurance benefits into a single policy with a single monthly premium, if long term care benefits are needed, the death benefit can be used during the insured’s life to pay for same. Then, upon the insured’s passing, whatever amount of the death benefit remains is available to go to the beneficiaries named on the policy, like a traditional insurance policy. Far from a use it or lose it planning tool! Unfortunately, these hybrid policies were not an option when I assisted my parents in purchasing LTCI over 20 years ago, and may be more expensive than traditional policies depending on the applicant’s age, health and insurability.
In this day and age, I see the real value of a traditional LTCI policy when used as a buffer against the five (5) year look-back created by a non-exempt transfer of assets for Medicaid eligibility purposes: also known as a gift.
Consider this scenario: husband and wife transfer their home and/or non-retirement liquid assets to a Medicaid Asset Protection Trust (MAPT), thus, creating the five-year lookback period for nursing home Medicaid eligibility and at or about the same time they purchase LTCI policies that will provide them with significant coverage during the 5-year lookback period they created. Once the lookback period has expired and the assets in the MAPT are protected for Medicaid purposes, the husband and wife can (if they wish) stop paying the premiums on the LTCI and let the policy lapse. Since the assets transferred into the MAPT are now protected for Medicaid purposes, the husband and wife have now limited their exposure to the cost of long-term care and have also provided themselves with insurance coverage if they had become in need of nursing home coverage during the five (5) year look back period.
Additionally, it should be noted that if one has a large IRA/401k and/or Qualified Annuity, the face value of the retirement account is protected and not counted for Medicaid eligibility purposes. Medicaid will however count the required minimum distribution (RMD) as available income for eligibility purposes. As such, funding qualified retirement funds is another way of sheltering assets from the cost of care, as they are exempt for Medicaid purposes and the income they generate can be used to pay for the cost of care.
The cost of long-term care is on the rise, the average cost of 24/7 home care and nursing home care is between 180,000 to 220,000 per year in Westchester County and surrounding counties. As such, preparing for these future costs is imperative and requires one to be proactive and consider all options, including long term care insurance and transfer of assets for Medicaid purposes, in advance of one needing the care. As with many challenges in life, advance planning is critical!
