Outliving income is a major concern for many Americans. Long-term care is a likely expense for 70% of Americans age 65 and older and can quickly deplete savings and investments.
For most Americans there are just three funding options: self-fund using income and assets, long-term care insurance or qualifying for Medicaid which is government assistance for long-term care.
Some may have “aged out” of insurance options
Depending on the product design the outside ages for insurance are 75, 80, or 85.
Others may be relatively young when a medical diagnosis eliminates insurance as a funding option. Consider that 34 is the average age when Multiple Sclerosis is diagnosed.
The good news is that more products and services are entering the market providing more funding alternatives for consumers.
Not all new funding options are insurance. Here are three funding strategies for people who are uninsurable either because they are older than 85 or have an uninsurable medical condition. Some may already be receiving care.
Long-Term Care Benefit Plan
This is a very good reason to hang on to that life insurance policy that you’ve been thinking of canceling. A Long-Term Care Benefit Plan allows the owner of a life insurance policy to sell the policy at fair market value to fund long-term care expenses.
Because the value of the conversion is based on the death benefit and not on the cash value any form of life insurance policy can qualify including term, permanent or group. A Long-Term Care Benefit Plan is a unique, tax-advantaged funding option.
The Benefit Plan is an irrevocable FDIC-insured account administered by a third-party. The account is set up to make payments directly to the care provider of choice.
Funds will pay for all care venues. A funeral benefit is preserved and upon death any unpaid account balance goes to the designated beneficiary(s).
This can be accomplished quickly. There are no triggers to eligibility. All health conditions are accepted. There are no elimination periods (deductibles), no care restrictions or requirements to be terminally ill. Care payments are tax-free.
Home Care Membership Services
This is not insurance. It’s a membership program. No underwriting. No claim forms. No triggers to eligibility. No deductibles. No co-pays. And, available though age 99!
Members can purchase a set number of hours from 150 hours up to 1000 hours and renew if more care is required.
This is deeply discounted home care. For example, the median hourly cost of non-medical home care in the nation today is $22 per hour. A thousand hours of home care at $20 per hour would cost $22,000. With this membership 1000 hours runs $5700 or $5.70 per hour.
Because members are buying hours instead of dollars there is a built-in inflation component. If hours are used today, the value of one hour is $22. But if care is not needed for 10 years and the cost of non-medical home care has increased to $30 per hour, the value of the hour would then be $30 in 2029 versus $22 in 2019.
If care is not needed a 10% discount applies to the premium year after year for four years. In other words, members can receive up to 40% off of yearly premiums until the time that care services are engaged. Then premiums reset to the original amount. If hours are exhausted the membership hours can be renewed nine times.
Membership pays for home care services provided by nationwide franchises or an approved friend or neighbor selected by the member. (The caregiver just cannot be a family member or anyone that resides in the member’s home at the time of application.)
This is field issued. The only eligibility requirement is that applicants cannot need home care when they apply.
Single Premium Immediate Annuities
These annuities have long been the long-term care funding mainstay for the uninsured or the uninsurable. There are two designs — medically underwritten and non-medically underwritten.
Both can be designed to provide an income stream guaranteed for a certain period of time and/or for the lifetime of the annuitant. Some allow income to be used to pay for care expenses or any other purpose.
The payout from a medically underwritten single premium immediate annuity is greater because insurers are assuming and underwriting shortened life expectancy.
These are taxable funding options and usually require a substantial premium to fund a meaningful long-term care benefit.
With more funding options comes more confusion to an already complex issue. But the good news is that more products create more funding options for all Americans.