RETIREMENT SECRETS: Should you drop your long-term care insurance?

From KARL KIM

The premiums for some long-term care insurances have risen by up to 85% recently. Other policy areas have seen smaller increases of 15% to 40%. The largest increases are in those policies that have lifelong benefits.

A large number of people have been paying into their policies for many years and are now in their 70s or older and have steady income. With premium increases devouring a larger chunk of the budget, many wonder if they should drop their guidelines. Here are five things to consider before canceling your policy.

1: Check again why you bought the policy. Worried about paying for home care? Were you concerned about burdening your kids? Were you worried about running out of money when you needed care? How does your insurance policy fit into your plan?

One of the biggest expenses for retirees is paying for long-term care costs. The best way to plan for these costs is to start with the worst-case scenario and work backwards from there.

The worst case is: “What if you have to be looked after in a nursing home for a long period of time? How would you pay for it? “How would you pay the $ 8,000 monthly care in a facility? Would you use your income and assets? Would you get long-term care insurance? Would you qualify for Medi-Cal Long Term Care?

Yes, Medi-Cal is a viable option for many middle-class Californians. The average California retiree mistakenly believes that they have to be broke to qualify for Medi-Cal. It is absolutely not true.

Here’s why. Fact is that some assets matter, these are called countable assets. And some assets don’t. These are known as exempt and unavailable assets. A married couple can have countable net worth up to $ 119,240 for 2014 if a spouse applies.

There are many assets that don’t count. The house is an exempted asset and does not count. You can live on a boat or in a mansion – if that’s your home, it doesn’t count.

Age accounts also do not count if a periodic distribution such as a required minimum distribution is made.

So, if you could qualify for long-term care to cover the cost of the nursing home, your long-term care insurance would be mostly used for home care and assisted living. If your policy has a lifetime benefit, you can reduce your lifetime benefit to lower your premium.

2: What kind of policy do you have? If you could qualify for Medi-Cal and your policy paid for facility and home care (extensively), your insurance would primarily be used for home care and assisted living. It is not used for home care as you could qualify for Medi-Cal.

If you only have a nursing home and would qualify for Medi-Cal, you should consider canceling your policy or significantly reducing the benefit to save on premiums.

3: What is your current daily benefit? The policies with the highest growth are the older policies with the 5% compound inflation rider. This is a very expensive driver. So, if you’ve been on your policy for a while, your daily benefit may be so high that the inflation driver may be dropped. This locks your current daily use and saves premiums. The average person who benefits most often is in their late 70s or older.

4: What is your current lifelong benefit? In other words, once you make a claim, how long does the insurance company pay? The maximum lifetime can range from one year to the lifetime. The longer the benefit period, the more expensive it is for the insurance company. Some of the largest increases in premiums are for lifelong benefit policyholders. Again, consider shortening your benefit period to save on premiums. You may want to consider a six year lifetime benefit.

5: Can You Reduce Or Freeze Your Benefits? Often, when companies increase premiums, they offer policyholders a variety of options to keep premiums the same or lower. Other options may be available if the company is called and asked.

Everyone is different, so don’t choose an option just because your friend did. Finances, health, age, performance and family situations are different. Choose the option that works best for you.

Let’s look at an example. An 85 year old woman has a comprehensive policy that has a current daily benefit of $ 200 per day with a 5% inflation tab and a 10 year benefit period. Her insurance company has told her that her premiums will increase by 40%. What should she do?

On a monthly basis, her policy currently gives her $ 6,000 for nursing homes or home care. The average cost to set up in your region is $ 7,000 per month.

She receives $ 1,000 a month from Social Security and a $ 1,000 monthly pension. Between her $ 6,000 insurance benefit and an income of $ 2,000, she has enough monthly income to pay for nursing home and home care costs.

In addition, it is determined that in the worst case scenario, if she has to be cared for in a nursing home, she could qualify for Medi-Cal Long Term Care. Therefore, she does not need long-term care insurance for this scenario. It is used for home care.

Options to consider if she didn’t want to pay the premium hike would be to freeze her current benefits and drop the 5% inflation tab. She may also want to shorten her 10-year benefit period to five or six years.

At 85, she is at the age at which she can use the policy at any time. To avoid the premium hike, any of the previous options would make sense.

This is just one example of the analysis that should be performed before policy changes are considered. Remember that changes that reduce insurance benefits are usually irreversible. You may not be able to get the higher benefits back or not get them back at the same rate.

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Karl Kim, CFP, CLTC, is President of Retirement Planning Advisors, Inc. and Medi-Cal Specialist, CA Lic # 0810324. His office is located in La Mirada. He can be reached at (714) 994-0599 or at www.RetirementCrisisPlanning.com. Karl has submitted over 1,000 Medi-Cal applications in the last 20 years with a success rate of 99.9%. Karl’s book, Don’t Go Broke If You Pay For The Nursing Home: How Californians Can Protect Their Home, Cash, And Retirement Accounts, is available on Amazon.com. This is supposed to be an educational article. Do not make any decisions based solely on the information in this article. Check with your tax advisor, financial advisor, or attorney before taking any action. We are not responsible for inaccuracies or misinformation.

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