Long-Term Care Insurance:  How does it work and is it right for your family?

August 9, 2017

Whether you’ve had a long-term care insurance (LTCI) policy for years or you’re thinking of buying one, it’s critical to understand exactly what set of conditions will trigger coverage. Your chances of requiring some sort of long-term care increase as you age, and long-term care insurance (LTCI) can help you cover your long-term care expenses. Although tax issues are probably not foremost in your mind when you buy LTCI, it still pays to consider them. In particular, you should explore whether your premiums will be deductible and your benefits taxable.

But who should buy the coverage and when? Many experts use net worth as a purchasing guideline. On one end of the spectrum, individuals with lower net worth will quickly exhaust their assets when funding long term care and qualify for Medicaid. At the other extreme, you may be able to pay for any potential long term care costs yourself. Keep in mind “self-insuring” requires investing a portion of your assets in a conservative fashion to cover possible long term care expenses.

If you fall in between these two categories, it’s worth weighing the trade-offs between the peace of mind a long term care policy might bring you and the premiums you will pay. Most experts suggest beginning this analysis around age 50. If you wait until your 70’s, it may be too late to purchase insurance as some long term care insurance companies place restrictions on the age and health status of buyers.

What determines if you’re entitled to benefits?
LTCI policies differ on how benefits are triggered, so it’s important to examine your individual policy. Here are some ways you can become eligible for benefits:

  • You’re unable to perform a certain number of activities of daily living (ADLs) without assistance, such as eating, bathing, dressing, continence, toileting (moving on and off the toilet) and transferring (moving in and out of bed). Look in your policy to see what ADLs are included, the number you must be unable to perform, and how your policy defines “unable to perform” for each ADL, as criteria can vary from one company to another (e.g., does the definition require someone to physically assist with the activity or simply to supervise the activity?).
  • Your doctor has ordered specific care.
  • Your mental or cognitive function is impaired.

The best policies let you qualify for benefits if your own physician orders specific care, rather than require that you be examined by an insurance company physician. Most LTCI policies have a waiting period, commonly known as an elimination period, before you can start receiving benefits after you’re judged medically eligible. Common waiting periods are 20, 30, 60, 90 or 100 days.

Though it’s true that premiums paid on a tax-qualified LTCI policy can reduce your tax burden, you must itemize deductions to be eligible.  LTCI premiums fall under the write-off for medical and dental expenses, which is limited to expenses that exceed 10 percent of your adjusted gross income. And there’s another caveat. Even if your LTCI premiums exceed 10 percent of your adjusted gross income, you can’t include all of the premiums in your deduction for medical and dental expenses

Long term care can be an emotional issue, but it’s best to evaluate the product as a risk management tool, like your homeowners, life, and auto insurance. Finally, because policy language can be ambiguous and insurance companies seem to introduce new riders on a daily basis, it’s beneficial to consult with us before purchasing long term care insurance.

At HFG Wealth Management, we embrace a holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage.

For more information, please visit www.hfgwm.com or call 832.585.0110.



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