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Planning for long-term care

By: Art Neibrief
March 2, 2018

Former First Lady Rosalynn Carter once said, “There are only four kinds of people in the world: those who have been caregivers, those who are current caregivers, those who will be caregivers and those who will need care.”

Planning for long-term care (LTC) is like having a living will; an advanced health care directive. Consider the following to determine what you want, to see if your income and assets can cover the cost of care and to initiate an important conversation within your family:

• Who do you want as your in-home caregivers (specific family members and/or paid caregivers)?


• How will your home care be paid for, if paid care is needed (social security income, pension, income from investments) and what investments should be sold if income doesn’t cover all costs?


• What facilities do you prefer, if it’s in your best interests to leave your home?


• How much money do you need an insurance policy to generate to pay at least part of a care bill?


• What insurance is available, based upon your current health and health history?


All LTC policies provide tax-free benefits, including payments made for home custodial care, assisted living and nursing home care. However, one’s own funds used for home custodial care or assisted living facilities are not tax deductible.

Long term care insurance policies; traditional and hybrid type

Most people with coverage have a traditional policy, meaning premiums are paid each year and policies are guaranteed renewable no matter what health changes may occur. When one needs care, the premium payments cease. If care is never needed, the money spent on premiums is gone, just like homeowner’s or auto insurance. (Note: Some companies offer a return of premium rider). Some companies offer a cash benefit feature, which lets family members be paid for providing care.

A hybrid policy is either an annuity or a life insurance policy with LTC benefits. They are gaining in popularity as more people learn about them. The amount of money the company owes for care is greater than the premium paid; called the “leverage” factor. The younger and healthier one is when the policy is taken out, the greater the leverage.

 All hybrids provide the certainty of a return if care is never needed, and the policyholder typically has access to the premium paid (as a loan against cash value). As with traditional coverage, hybrids are also guaranteed renewable irrespective of health changes.

Qualified funds (such as a 401K or IRA) in the name of one spouse can be used to fund a policy for the care of either spouse. This can be an ideal choice when a couple’s net worth is mostly in such funds.

 Hybrids can sometimes be purchased with an existing annuity or life insurance policy on a tax-free exchange basis. The life insurance hybrid can be paid for all at once or over a period of years, but the annuity is paid for all at once.

In addition, depending upon one’s health, the insured could also be eligible for a continuation of benefits rider, which provides ongoing care benefits after payments under the base policy have been exhausted. With both the life and annuity version, the continuation rider can be paid for over time or all at once.

Hybrids are underwritten based more upon one’s likelihood of longevity rather than health conditions that may increase the likelihood that care will be needed soon. Accordingly, it can be easier to qualify for a hybrid, depending upon one’s health history.

Attention: Business owners

All business owners should consider this coverage for themselves and their key employees because of a few key advantages:

Tax advantages: Premiums can be a deductible business expense and insurance benefits are still received tax free, unlike disability insurance payments. 

Selectivity: Management can cover a select group, such as owners and key personnel, with no requirement to cover all employees.

Executive carve-out: The business rewards specific executives by providing coverage for those deemed key to the success of the business; spouses can be included as well. Also, by using an accelerated pay option such as a “ten pay,” the business can choose when the premium payments will cease. Ideally, around the time the executive retires they can have a paid-up policy. Whether or not there is an accelerated pay utilized, the executive is always the policy owner and the policy is portable (property of the insured, not the business).

The bottom line

Take the time to become educated about your options, have a family conversation and create a written plan. By doing so, you will be in a better position than having to react to a sudden, unforeseen situation.  Remember: Hoping you’ll never need care is a desire, not a plan.

Art Neibrief has specialized in long-term care planning since 1998. He has helped thousands of families, both as an agent and as a consultant to more than 100 financial advisors in the North Bay and San Francisco. His consultations are at no cost or obligation, and they can be held either in person or with a private webinar via computer. Contact him at (707) 974-8282, or CA insurance license #0C22076.