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August 05, 2007 at 04:00 PM
Many baby boomers who are planning for retirement with financial advisors would benefit if the advisor were to initiate discussion about alternatives for paying for long term care needs.
Having confronted the emotional and financial difficulties of LTC with their parents and having seen what lack of planning and choices actually costs, many will be interested in learning about those alternatives, including LTC insurance.
To help clients decide if LTC insurance is suitable, advisors need to review the clients’ income and assets owned, ability to pay premiums, and age and health status. Also, advisors can help clients determine whether they have other alternatives to LTC insurance for paying for the care.
Income and Assets Owned. How much income a client has now or is projected to have in retirement is a factor in the decision to purchase LTC insurance.
Some experts have suggested that if a retiree collecting Social Security has more than $30,000 of individual annual income, she would need to purchase LTC insurance–because her income would make her ineligible for Medicaid coverage of LTC expenses.
Of course, the higher the annual income, the more likely it would be that the client would be able to pay her own LTC expenses. However, most people do not have an income level that would allow them to pay today’s average annual nursing home cost of $70,000. That is especially so for clients with family or other financial responsibilities, since the income would need to cover both the nursing home costs and those other expenses.
The assets a person owns also would affect eligibility for Medicaid coverage of LTC expenses. Most states exclude $500,000 to $750,000 of the value of a person’s home from assets considered for Medicaid eligibility. However, the total of other assets allowed typically is very low, for example $2,000 to $3,000. Therefore, to qualify for Medicaid, someone with more assets than that would have to “spend down” those assets first.
Since many clients prefer to leave their assets intact, they would be prime candidates for purchasing LTC insurance.
Ability to Pay Premiums. Most LTC insurance policies are issued with a level fixed premium based on the insured’s age. However, insurance companies are allowed to increase premiums at some point in the future for an entire class of insured persons in order to cover the risk of all insureds in that class.
Because it is possible that the insurer will raise the premium later on, a client who purchases LTC insurance must be able to afford any increase in premium.
