Wednesday, May 15, 2013

Alternatives to Long Term Care Insurance

As mentioned in my last post, "Will You Qualify for Long Term Care Insurance?" more than half of Baby Boomers and older retirees will not qualify for Long Term Care Insurance.  What will happen to them when they become old and frail?

When my husband and I purchased our LTC insurance, our broker told us that I needed more insurance than my husband because I was likely to out-live him.  He said that in the case of a couple, one spouse will often care for the other right up until the time of death.  Many debilitating diseases can be treated at home, as long as there is a willing caregiver who is able to handle this.  Because of this, the first spouse to become ill may not even need LTC insurance, or may only need it for a relatively short time.  We purchased a policy that would provide care for my husband for four years, while we purchased life-time care for me, beginning 90 days from the time I go into a nursing home or need at-home assistance.  (Medicare pays for the first 90 days of care.)

However, what if you are single or widowed and you do not have long-term care insurance?  What if you are married, but you become too old or frail yourself to physically care for an ill spouse?  What if your ill spouse needs more care than you are able to give?  In these situations, you need to know about your options.

Alternatives to LTC Insurance

According to InsuranceNewsNet, people who have liquid assets that exceed $1.5 million could self-insure themselves.  People with adequate assets should be able to personally cover the cost of either a home healthcare aide or a nursing home, should one become necessary.

At the other extreme, people who have very few assets may also want to self-insure.  Currently, a person who collects less than $30,000 a year in individual Social Security benefits is eligible for Medi-Cal, as long as they do not have very many assets.  In this situation, Medi-Cal will cover the cost of a semi-private room in certain nursing homes, or homecare with community based services.  Medi-Cal also protects a spouse from becoming completely impoverished if the other spouse needs to go into a nursing facility or similar medical institution.  However, there are limits on income, assets and home equity and the numbers are changed from time to time.  You can get more information about current eligibility requirement and benefits in this overview of the Medi-Cal program.

For those who cannot afford to self-insure and do not think they will qualify for Medi-Cal, there are a few other alternatives to traditional long-term care insurance.  The particular option that will work for you depends on whether the reason you cannot obtain a policy is because you cannot afford one or because you cannot get the approval of medical underwriters.

What If You Cannot Afford LTC Insurance?

If your income falls in the middle between being wealthy or low-income, you may wish to try one of these other solutions to help cover the expense if you or your spouse needs long term care.

One approach that may be more affordable than traditional LTC insurance is to purchase a special combo policy that combines both life insurance and LTCI.  With these combo policies, you will get a lower return on the cash value of your life insurance and your death benefit may be cut if you use too much of the LTC benefits.  In addition, you still need medical approval.  Therefore, you can be denied this policy, just like you can be denied a traditional LTC policy.  However, for those who do qualify medically but may be concerned about the cost, this may be a less expensive alternative.  Basically, it gives you the opportunity to take an advance on your life insurance in order to pay for your long-term care.

Your insurance broker may also be able to help you with similar options such as a long-term care rider on your current life insurance policy.   Discuss both of these options with your insurance broker to see if this is an affordable, practical option for you.

What If You Cannot Pass the LTCI Medical Exam?

As mentioned in my previous article, more than half of Americans age 50 and older will not be able to qualify to buy this insurance because they cannot pass the strict medical standards.  This is especially worrisome for these people because those who have a serious medical problem are also the same people who are likely to eventually need care, either in their personal residence or in a nursing home.

One option they have is to purchase an annuity with a long-term care rider.  These riders do not require a medical underwriting, but you need to wait five to seven years until the LTC benefit is available.  In addition, you have to have enough assets to pay for them in advance.  Many annuities can require an upfront premium of $50,000.  You should also know that the benefits are only for a limited time.  However, if you believe this would be helpful to you, contact an investment professional who specializes in annuities. 

Another similar choice is to purchase a medically underwritten immediate annuity which can provide you with a lifetime income stream.  With this type of annuity, your income stream may actually increase if you show that you have coronary artery disease or some other serious illness that is likely to shorten your life.  The reason for this is because the insurance underwriters are betting that your disease will reduce the number of annuity payments they will need to make, therefore each payment can be a bit larger.  This may sound grim, but the truth is that there are actuaries who work for the annuity companies and they base the estimated return on your investment on how long they expect you to live. For people who need to dramatically increase their retirement income in order to cover long-term care, this type of policy can be a helpful solution.  Again, talk to your investment professional and find out what types of annuities they offer.  Discuss with them whether you should put your money in this type of annuity now or wait until you are seriously ill and need the extra income.  If they recommend that you wait until you need this annuity, make sure you put aside the money in a safe account, so that you have it when you need it.

Whether you decide to self-insure your long-term care, rely on Medi-Cal,  purchase a LTC insurance rider on a life insurance policy, or buy an annuity that will cover your future medical expenses, will depend on your personal situation.  You should not make a decision on this without consulting your financial planner, investment professional and insurance broker.  Whatever option you decide is best for you, the purpose of this post is to let you know that you do have options.  Even if you do not qualify for traditional Long Term Care Insurance, you are not helpless.  You can still make a plan regarding the way you will pay for your personal care during the last few years of your life.  It provides peace of mind just knowing what you will do when the time comes, so you do not have to make decisions when you are already in need of help.

Don't Forget About Your Veterans Benefits

Approximately one in three Americans are also eligible to receive some aid from the Veteran's Administration.  There are some specific guidelines to qualify so you may want to read my article:  "Are You Eligible for VA Long Term Care Benefits?"  You may be surprised to find that you qualify, especially if you or your spouse served in the military and a war was going on during that period of time ... even for just ONE day.  The veteran did not have to serve in the war zone, just be in the military at that time.  The application process is complicated and they initially deny benefits to most applicants.  Don't give up!  Get help from an organization like the American Legion or Veterans of Foreign Wars.  You may also be able to hire a consultant to help you.  The effort is well worth it!

Find additional information about your options at:

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  1. This article is an eye opener. Thank you for helping us all get a better perspective on this issue.

  2. Thank you for your comments. When I researched this article, I was also interested to learn that there actually are some alternatives to Long Term Care Insurance that will be helpful to many people. That is actually a relief, since so many of us will end up needing this kind of care at some point in our life.

  3. Long term care insurance alternatives are also a good choice for the elderly people. These alternatives are much more affordable. You can purchase this easily.

  4. I was searching for this post, i need a good policy. Long term care insurance policy is the best policy to secure my future.

  5. Yes, long term care insurance will help a lot of people. However, they need to purchase it as soon as possible. The younger, the better.

  6. With the rapid growth of baby boomers, this is very timely, I have shared this article in my own blog (, so we can reach more boomers who are in desperate needs of advise on how to cover their long-term care expenses. I hope you appreciate it. :

    1. Thank you for including a link to my article in your article about long-term care. It is truly frightening how many people are not prepared to take care of themselves as they age!

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