 Personal Finance PowerPoint Presentation. Alternatives to Long Term Care LTC Insurance. Prepare to get financially fit by practicing personal finance. Insurance is part of our long term risk mitigation strategy where we follow the adage of measure twice cut once, putting a formal process in place, something like setting the insurance goals, developing a plan to reach them, putting the plan in action, reviewing the results and repeating the process periodically. Most of this information can be found at Investopedia for Best Alternatives to Long Term Care Insurance, which you can find online. Take a look at the references. Resources continue your research from there. This is by Evan Tarver, updated August 31, 2021. In prior presentations, we talked about insurance in general. Then we moved on to medical insurance, which could be a little bit more confusing because of the laws and regulations related to it. Remember that if you think about normal insurance and keep that in your mind, it can help you to kind of ground what we're thinking about with risk mitigation and then think about any alternatives or changes from their normal insurance, such as liability insurance, such as property insurance, life insurance, or insurance against something that we're kind of hoping doesn't happen. But if it did happen, it would be financially devastating, such as dying prematurely, house burning down, or someone suing us for millions of dollars. Therefore, we insure against it. Medical insurance has a component of that as well because we might have a big disease that we're trying to insure against because it would be financially devastating, but it also expands a bit to cover the normal routine type of stuff that is not something that we expect not to happen. Those are things that we expect to happen to us at some point in time. And so we also talked about the dental and the vision, which also have components that are more like helping us to mitigate our expenses possibly and less so possibly for that long-term, big expensive item that might come up. Now we're looking at the long-term care insurance. Okay, so four best alternatives to long-term care insurance. Long-term care insurance is a specific type of health insurance that helps people pay for long-term care. It covers the types of care not included in traditional medical plans, Medicare, Medicare, and for people not eligible for Medicaid. So in other words, when we talk about the normal medical problems, we have that coverage against that long-term thing that happens oftentimes like an accident which could or a big disease that comes up, then hopefully the medical insurance will kind of kick in and help us out with those costs. We've got the Medicaid, but the Medicaid is usually there for people whose incomes and asset levels are below a certain threshold. So we would like to not have to do the Medicaid because that's going to limit us. That's going to force us to say, okay, now I've got to limit my asset level and my earnings and what not to qualify. And then the Medicare is going to be similar to the normal insurance. So the long-term care, meaning care for people that possibly need like full care all the time due to possibly age, for example, then that might not be covered under these other areas and therefore long-term care becomes important. Now notice that the situation where you are requiring to have care all the time is going to be quite an expensive situation. So in that sense, it's similar to like the life insurance and the property insurance and so on, in that you've got this financially devastating kind of thing to need that full-time care all the time. And also it's something that hopefully you're thinking possibly won't happen. You're hoping that you'll be able to go through possibly and not have total need or that kind of dependence. But if it were to happen, you want to have the plan to risk mitigate from it some way if possible. So even though long-term care insurance covers people with a variety of issues from different age groups, it may not be the best option for some. The potential need for long-term care should not be overlooked. A majority of people will require it when they get older. So notice they're saying here a majority of people will require it when they get older. So in other words, I mean you can try to think about what's the likelihood at some point in time that I'm going to need some kind of long-term care. You would think at some point, obviously if you were to live that long that you would need it at some point in time. So in any case, approximately 70% of people who turn 65 today will require long-term care at some point according to the U.S. Department of Health and Human Services. Long-term care insurance is expensive and not everyone is eligible, but these four alternatives can provide good coverage for those in need of long-term care. So we got long-term care insurance, affordability and eligibility. Long-term care insurance can be expensive. It's also generally most cost effective when purchased before people turn 60. So obviously when you're thinking about long-term care, it's one of those things. Insurance is one of those things where you're thinking, well, I'll buy the insurance right before I have the problem or you're not really thinking about long-term care until it's kind of too late to get the earlier or easier prices on it, obviously insurance being the way insurance is, you got to pay for the insurance before you have the problem, which is kind of the point of the insurance. So you're going to end up, of course, with a lot of people that might be caught in an area where they don't have any long-term care kind of plan and they're getting up to the point where they're going to possibly need it. So in 2020, the average annual premiums for a healthy couple, both 55 years old is $3,050 according to the American Association for Long-term Care Insurance. So obviously that's a substantial amount just for the insurance. In any case, even at these high premiums, the insurance companies that offer this type of insurance can reject applicants after probing more deeply into their health histories due to these factors, people may need other options for long-term care coverage. So you might be saying, well, that's just not an option for me because I can't afford possibly the long-term care coverage, what other options are there. Number one, short-term care insurance. Short-term care insurance, also known as convalescence insurance, is a policy that typically offers between $100 and $200 per day of health care coverage for one year or less. So since there is no long-term commitment for the insurance companies, the premiums are normally less than traditional long-term care coverage options. The average short-term care premium for a 65-year-old, for example, is $105 a month. Since the premiums are lower and the coverage is only for a year or less, many applicants who are rejected by traditional long-term care coverage may be accepted by short-term care insurance. These types of policies have short or no elimination periods, allowing benefits to start immediately for those in need. With short-term care insurance, benefits normally reset. This means if someone files a claim but then recovers prior to receiving the full benefits, it is possible to file another claim in the future and receive coverage. While this type of insurance coverage can help those who are rejected for long-term care insurance, the brevity of the insurance coverage makes it only a short-term solution to long-term care coverage. So that might be some way to kind of mitigate the problem with the long-term care, but it doesn't look like a full solution clearly due to the nature of the insurance. However, Medicare offers post-hospitalization rehab for up to 20 days, making it possible to cover health care for slightly more, slightly over one year if short-term care insurance is used after that 20-day period. So number two, we've got the critical care or critical illness insurance. Critical care or critical illness insurance are two types of coverage that offer lump sum cash payments to people who are diagnosed with cancer, stroke, heart attack, or other serious illness. Additionally, Afflex and Guarantee Trust Life Insurance Company, two major carriers offer critical care and critical illness insurance with daily or monthly benefits for impacted rehab and continuing care. Afflex daily benefits can last up to six months, and Guarantee Trust's monthly benefits can last up to two years. Daily and monthly benefits aside, critical care and critical illness insurance are normally less expensive than long-term care insurance. For example, if a 60-year-old woman is looking for critical care or illness insurance, she can receive a $50,000 lump sum payment from a plan for as little as $100 a month. Even a monthly benefit insurance structure purchased through Guarantee Trust can give someone in need of long-term care up to $2,000 a month for two years and only cost around $110 a month. Number three, we've got annuities with long-term care writers. For people who are rejected by traditional long-term care insurance providers, it is possible to take out an annuity with a long-term care writer. So the annuity is typically something that you're going to be purchasing something and then you're going to get the payments, like monthly payments or something like that over possibly a lifetime if they're doing it that way for judging the life by annuity tables. For example, many invested in an annuity with long-term care writer can be used tax-free to pay for long-term care as defined under the contract. This gives a person a stream of monthly payments they can use specifically to pay for the care needed. Medical underwriting for this type of option is less stringent than traditional long-term care giving greater freedom in how people use the care benefits. If it turns out long-term care is not needed, it is possible to redeem the accumulated value of the annuity. So of course you might be in a situation where you don't need the long-term care, maybe you just die peacefully in your bed before you need the care or something like that or else you die unpeacefully or something happens, you die some way without it, then you might have an option to get the money at that point. So upon the passing of the annuity owner, heirs collect on the funds minus any withdrawals for long-term care. However, annuities need to be purchased upfront requiring a large upfront payment in return for monthly cash flow for a defined period. So that's kind of what an annuity is. You take the money, you put it into the annuity and then they're going to agree to pay you some monthly amount from the annuity based on their annuity calculations, whatever that is. Maybe you have an end date or maybe they use actuarial tables to try to predict it for your lifespan or something like that. Annuities like these have minimum upfront premiums of $50,000 and the money is normally locked in for five to ten years. Number four, deferred annuities. Long-term care can be preplanned through the use of deferred fixed annuity if people take into account that they have a 70% chance of needed long-term care after age 65. It is smart to hedge against future costs by putting money down prior to retirement and return for a promise and insurer will pay mostly sums beginning when a specific age is reached. So say, for example, a person is 60 years old and decides to purchase a deferred annuity for $100,000. When that person reaches a designated age, 72, if the annuity is in a tax-qualified retirement account, they begin receiving distributions. The distribution amount will depend on the type of distribution. Required minimum distributions require calculations from an internal revenue service schedule. Other distributions will typically depend on the contract terms of the annuity. A deferred annuity differs from an annuity with a long-term care writer because it is not designed exclusively for long-term care. Instead, this option can be used as peace of mind that if long-term care is needed after retirement, there is a monthly cash flow available to pay for the necessary expenses. A deferred annuity does not cover any long-term care needed prior to retirement. So what's the bottom line? The majority of people over age 65 will need long-term care at some point. So because long-term care insurance isn't for everyone, it's prudent to explore other options. Consider the above alternatives when planning ahead to pay the high costs of long-term care should you need it down the road.