A Different Approach to a Looming Healthcare Challenge – ABLTC

Healthcare2We all know someone who has needed long-term care at some point in time.  In fact, of those who are currently 65, about 44% will use a nursing home at some point in time.  Sixty percent of people over the age of 75 will need long-term care for approximately three years and 78% who need long-term care depend on family and friends or informal caregivers.  With these statistics in mind, we know that there is a cost associated with care.  That’s why it’s good to explore all avenues of covering this risk.

Many people purchase traditional long-term care.

Take for example Peggy, a female age 65.  Peggy purchased a traditional long-term care plan at a cost of $4255 per year.  Peggy is 65 and quite healthy.  If she lives for 20 more years she will pay a total of $85,100 during that time.  The concern is those premiums are not fixed or guaranteed, so they may increase.  At the end of the day, here are three possible outcomes:

  • It is possible she’ll never use the long-term care coverage, at which time she receives nothing back.
  • It is possible she wants to cash out of her long-term care plan altogether, at which time she will receive nothing back.
  • She could, however, keep those premiums and consider self-insuring.

Asset-based long-term care.

Asset-based long-term care is an approach that allows you to use your self-insurance funds (your savings) in an insurance product designed specifically to approach long-term care.  Think of an asset-based long-term care as a policy with a grouping of multiple benefits, not just old fashioned “death insurance”.

The first feature: guaranteed return of your premium.  After you place your single premium in an asset-based long-term care, you are guaranteed a return of those premiums should you ever choose to cash out the plan.  Some policies offer the guarantee right away, others “vest” over a period of years.Options vary widely and need to be explored carefully.

A death benefit.  Unlike a traditional long-term care where nothing comes back if you pass away without using any benefits, asset-based long-term care plans offer a death benefit that is intended to return something to your named beneficiaries in the event you don’t need the coverage or don’t use all of your long-term care benefits.

Long-term care benefits.  The insurance company will calculate a bucket of long-term care benefits available to you under the typical benefit triggers that you would see in most traditional long-term care plans.  The companies will quote the total long-term care benefit based on the amount of premiums that you’ve paid in, along with your age and health factors.

Now Peggy has a new set of potential outcomes.

  • If she needs the healthcare, she’s leveraged up her self-insurance pool to a significantly higher benefit base.
  • If she doesn’t need long term care at all, the full death benefit of her ABLTC will pass to her beneficiaries
  • If she uses some of her long term care benefit there still may be a death benefit payable to her beneficiaries
  • If she needs her premiums back she has guaranteed values that she can rely on.

There are excellent resources available to educate yourself on this option.  We can thank the Pension Protection Act for spurring on this creative thinking to help YOU have a more peaceful retirement.