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December 07, 2020 | Retirement Plans
Long-Term Care (LTC) not only requires logistical planning, but also careful cost consideration. In our last post, we detailed the specifics of who may need LTC and what kind, and now we’re digging into the cost of preparing yourselves for these types of substantial costs.
Based on information from the 2019 Genworth Cost of Care Survey1, the average annual national cost of Long-Term Care is as follows:
Home Health Care:
Assisted Living Facility:
Nursing Home:
Tips for Buying LTC Insurance:
Most policies currently on the market meet the federal standards regarding beneficial tax treatment. Individuals who itemize their deductions and spend more than 7.5% of their adjusted gross income on medical costs may deduct their premiums up to a certain amount based on age. The maximum 2020 deduction amounts per person are:
In addition, “C” Corporations that provide qualified LTC plans may deduct the full premiums paid as an ordinary business expense, including premiums for the employee’s spouse and dependents.
Self-employed individuals may deduct the cost of premiums without regard to the 7.5% floor, as the self-employed may now deduct from gross income 100% of amounts paid during the year for health insurance costs (including LTC insurance).
Hybrid insurance products that combine LTC insurance with other forms of insurance are becoming increasingly more common. These products are attractive to individuals who are concerned they will pay LTC insurance premiums for years and never receive benefits. There are many ways to obtain LTC insurance through a hybrid product. One of the most common vehicles is a single premium life insurance/LTC policy. As an example, a policy may cost $100,000 upfront and provide up to $300,000 for long-term care with a $150,000 death benefit. The client’s $100,000 would be spent on long-term care needs first. If the original investment is drained, any additional LTC costs will reduce the death benefit.
This option may be beneficial for someone who has the need for both life insurance and LTC insurance and can afford to pay a large upfront cost. It is also potentially appealing because an LTC and life insurance hybrid product provides an individual’s heirs with a tax-free death benefit if the money is not used for LTC. Additionally, some companies offer annuities and disability policies with long-term care riders or options. Hybrid LTC policies may have more limited coverage than standard policies so the costs and coverage should be evaluated closely when comparing different vehicles. An insurance expert should also be consulted when weighing the risks and benefits of each product.
Long-term care is a service that many people may need at some point in their lifetime. It is important to consider how one is prepared to pay for this service, especially with the rising costs of care. LTC insurance is one tool in the financial planning process that may allow an individual to protect his/her assets and relieve the burden of paying for care from their family.
Many individuals feel that if their net worth would allow them to pay for their coverage out-of-pocket that they need not consider an LTC insurance policy. However, even if that is the case, there are significant reasons to consider such a policy, such as peace of mind and potentially preserving the assets you would have used to pay for your care. You should speak with your insurance expert to deem how much and what kind of LTC insurance will best suit your future needs and concerns.
For more information, including a breakdown of average estimated LTC costs by state, please download our 2020 Long-Term Care Guide for all of the additional information that you need to know about long-term care planning.
Please consult with an attorney or a tax or financial advisor regarding your specific legal, tax, estate planning, or financial situation. The information in this article is not intended as legal or tax advice.
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