I have previously written about how the purchase
of Long Term Care Insurance can help to pay for care when assistance with
daily living is needed. However, such insurance is only one way to
finance the cost of care. There are other options to be considered.
Since each person's health and financial situation is unique the choices
available to each will differ. The following information should assist
you in making a wise choice for the future.
Good
financial advice and planning may be all that is necessary for
some individuals. People with high assets and/or incomes that
will allow them to pay $50,000 or $60,000 a year for long-term
care will not need to worry about how they will pay for it because
they already have the needed assets.
Younger people may be able to save and invest in order to provide
for care in their later lives. However, they should consider whether
they can save enough for protracted care if it is needed. It would
be wise to consult an accountant or an estate planner when deciding
on this option.
Annuities are another way to plan for long term care. Deferred
or immediate annuities are sold by most life insurance companies.
Annuities are insurance contracts that pay interest on the premium
you pay the insurance company. You pay one large premium up front,
and the annuity begins periodic payments immediately or later,
according to your choice. Immediate annuities provide
for periodic payments for a certain number of years or until
a specified event, such as your death. With deferred annuities,
your funds accumulate tax free until a specified event, such as
retirement or the need for long-term care. After purchasing such
an annuity, should you need to go into a nursing home, you will
have these periodic payments to help pay for your care. Please
take note that there can be a penalty if you need an early withdrawal
or a lump sum payment. Before purchasing any type of annuity
consult an accountant, lawyer or financial planner because the
cost may outweigh the benefits; investing in Certificates of Deposit
or other such investments may be more flexible for your needs.
Insurance products (other than LTC Insurance) may be the appropriate
mechanism for some people. Some insurance companies sell
Whole-life Insurance Policies with "advanced death benefits" or
"living benefits" riders. These riders allow you to request
that the insurance company pay a reduced amount of the value of
your insurance policy before your death if you are diagnosed with
a terminal illness. If you meet the criteria set forth in
the policy you may use the proceeds for long term care (or for
other purposes as well). If you own a life insurance policy
without a "living benefit" you may want to investigate if it is
possible to add this benefit. Also investigate other life
insurance policies with Long Term Care riders. Life Insurance
policies with this option can be sold with a single large premium
or may be purchased over time with periodic payments. They
may vary widely and the methods used to pay benefits are very
complex. These policies may be attractive to you but it
is wise not to purchased them without advice from an accountant,
tax attorney or financial planer.
If you already have an insurance policy you may be able to sell
the equity you have accumulated in it. This is called a
Viatical Settlement. This type of contract/settlement pays you
a discounted price for the equity in your life insurance policy.
If you meet the eligible criteria for such a settlement, you could
use the proceeds to pay for long-term care. These companies
should be licensed by your Department of Insurance.
If you own a home, you might choose a Home Equity Loan to
pay for your care. This is essentially a second mortgage
on your home. The funds can be paid to you either in a lump
sum or be drawn upon as needed. Although the interest rate
of such a loan may be lower than for some other types of loans
you need to be sure you will be able to repay it. There
are dangers to this type of loan because your home is collateral
and if you miss your payment(s) the lender can foreclose and you
would be evicted.
Another option might be a Reverse Mortgage. These are sometimes
referred to as Home Equity Conversions (do not confuse with a
Home Equity Loan). Reverse mortgages were developed to help
older people tap into the value of their homes which, for many,
is their most valuable asset. Such a mortgage allows you to remain
in your home and receive payments from the equity that you have
built up. The amount you might receive will depend on your age,
the value of your home and the cost of the loan. It may be paid
out in a lump sum or in monthly payments. No income
tax is due on these payments to you. Principal and interest charges
will accrue until your home is sold. Some Reverse Mortgages
require the sale of the home if you move into a nursing home.
The Federal Housing Administration now insures reverse mortgages
in most states and "Fannie Mae" has a reverse mortgage program.
Potential borrowers must be over sixty-two (although some plans
require borrowers to be at least 65 or even 70), have little or
no outstanding mortgage on their home, and the home must be their
principal residence for the duration of the reverse mortgage.
Recently some new types of income plans have been marketed.
They differ from the "traditional" reverse mortgage in that they
have annuities tied to their loan packages. Usually a portion
of the equity is used to purchase an annuity at the start of the
loan period. The homeowner still receives lifetime
monthly income but the income from the annuity can have tax implications
and could affect such things as Social Security, Medicaid and
other government benefits. Reverse mortgage programs are
complex and you should contact your Area Agency on Aging for information
and reverse mortgage counseling before deciding to use this option.It
would also be advisable to have such a contract reviewed by an
attorney.
The American Association of Retired Persons (AARP) has a free
consumers' Guide to Home Equity Conversion entitled Homemade Money,
which you can order free of charge by writing to AARP, Consumer
Affairs Department, 601 E St. N.W. Washington, DC 20049.
If your income is low and your assets few, the Federal Medicaid
program may assist you. (Medicaid is, in fact, the nation's
largest financier of long-term care.) Based on income eligibility,
it pays for long-term care in a nursing home, as well as some
in-home care and some community based programs in addition to
health care. Eligibility rules differ from state to state
so contact your local Department of Social Services for more information.
Lastly, I would like to suggest that you reread the articles on
this website "Home is Where
the Heart Is" and "Long-term
Care Insurance." Alternative living arrangements should be
considered along with Long Term Care Insurance and the options
above. Consider all of your alternatives, learn more
about each and then seek financial and legal advice. The
earlier you plan for your future needs the more options will be
open to you.
