Estate tax expert and Disinherit the IRS author E. Michael Kilbourn today outlined a compelling case for purchasing long-term care insurance.
“Americans are living longer and healthier lives, thanks to better medical care, better diets and safer living and working environments. However, no one is immune from the effects of aging, which often result in reduced mental or physical ability. Often times, individuals need long term care in the home or elsewhere due to aging, disabling disease or a serious accident. Having family or friends serve as caregivers may not always be a viable option,” Kilbourn said.
According to the U.S. Department of Health and Human Services, seven out of ten people will need some form of long term care during their lives. With an average stay in a nursing home of approximately 2.5 years, the cost can be staggering.
According to Kilbourn, long term care insurance is insurance that provides for the cost of long-term care beyond a predetermined period. It generally covers care not covered by health insurance, Medicare or Medicaid. People who need long term care are those who will, at some point in the future be unable to perform the basic “activities of daily living” (ADLs) such as dressing, bathing, eating, toileting, continence, transferring (i.e., getting in and out of bed or a chair, etc.) and walking. Long term care is also frequently needed in the case of Alzheimer’s and Parkinson’s disease.
“Age is not a determining factor in needing long-term care, especially since approximately 70 percent of people age 65 or older will need at least some type of long-term care services during their lifetime. Once a change of health occurs, long term care insurance may not be available, so the sooner a person purchases long term care insurance, the better. Also, the premiums increase as a person ages,” he said.
Kilbourn believes nearly everyone should have long term care insurance, even if they are well off and could afford the cost of care. “From an investment point of view, today’s products provide protection at a fraction of the cost. Also, there are new products that eliminate the old ‘use it or lose it’ alternatives with traditional long term care insurance products. For example, there are new ‘hybrid’ life insurance policies that allow the insured to be able to access the full death benefit during life, tax free, for long term care. If no long term care is ever needed, the death benefit is paid at the death of the insured, tax free, to beneficiaries. There are also deferred annuity products that provide long term care benefits at a multiple of the annuity saving account, tax free, if and when needed. Like the hybrid life insurance products, the annuity balance would be available to the annuity owner during life or beneficiaries at death,” he said.
“The average cost of long term care in a nursing home this country is approximately $83,000 per year and almost twice as much for home health care that requires a trained, professional care giver around the clock in a home setting. Add to that the fact that long term care costs are escalating at the rate of approximately 5% a year and it is easy to see that long term care insurance acts as protection in retirement. When I meet with couples who are living on an income amount equal to the cost of long term care, I always point out what would happen if one of them needed care and it took all their retirement income. Clearly, long term care insurance is needed to protect them in retirement,” concludes Kilbourn.
