1. Why should one consider getting Long-Term Care insurance?


Because the impact on the entire family when one member needs Long-Term Care is so profound, so devastating financially, emotionally and physically, that it would be irresponsible to not do so. The family will want to help, and they will help. The insurance simply allows them to do so longer, with greater comfort, less stress and strain, and with the ability to provide higher levels of dignity and service. About 75% of singles and 50% of couples will spend their entire life savings within one year of entering a nursing home. The annual cost to companies totals over $25 Billion per year, or about $4000 per employee. By 2020 it is projected that 1 in 3 workers will be faced with providing care for their baby boomer parents.


2..When is the best time to buy Long-Term Care insurance?


It may come as a surprise, since Long-Term Care is often thought of as something for old people, but in fact the advice is the younger the better when applying for LTC insurance. Premium rates are based on applicant’s age and health, and underwriting is getting more strict. It is not likely a 30 year old will consider LTC (they are invincible, after all, right?). But it should be seriously considered by mid-40’s and above.  Currently, the average age of applicants is 57. LTC insurance carriers set the maximum age for applicants, and the trend is to reduce the maximum age. It should be emphasized that just because someone may want it, not all applicants can get it. Applicants can be declined due to health conditions. Likelihood of being declined increases 


3. How long is one likely to need Long-Term Care services?


It is nearly impossible to predict with accuracy. According to US Dept. of HHS, 70% of those who reach age 65 will need LTC at some point in their lives. Of those needing care, it is estimated that 20% will need it for more than 5 years, 20% for 2-5 years and 12% for 1-2 years. It is suggested to have at least 3 years of coverage. If care is needed because the patient suffers from Alzheimer’s disease, it could be a very long period, up to 10 years or more.


4. Do health plans, Medicare or Medicaid cover Long-Term Care services?


Long-Term Care is custodial. Health plans do not cover custodial care. Medicare covers skilled and rehabilitative care (up to 100 days in a nursing home, with no copay the first 20 days, then you pay a copay for days 21 through 100), but does not cover custodial care. Medicaid will pay for custodial care, primarily at qualified nursing homes, after the person qualifies financially (with a 5 year look back for transferred assets, and after self-pay for the number of ineligible months). Federal law requires states to seek estate recovery for amounts paid.


​5.  How can one get Long-Term Care protection without the “use it or lose it” associated with traditional Long-Term Care insurance?

 

Simply by getting one of the life insurance policies currently available with LTC protections. In that way, the owner can “LIVE – DIE – QUIT”.  If the insured needs LTC services, tax free benefits are available up to and in some cases beyond the amount of death benefit.  If the insured dies, without needing LTC services, the beneficiary gets an income-tax free death benefit. In addition, in most cases, the policies include a “return of premium” feature that allows the owner to cancel the policy for any reason and receive back at least the amount of the paid premium (less any loans or benefits already paid). This approach provides liquidity, leverage and tax free benefits.


6. Are premiums paid for Long-Term Care insurance tax deductible?

 

Yes, as long as the policy is “qualified”. IRS limits maximum individual deduction based on age of the taxpayer. Deduction is made after reaching required percentage of AGI.  Business entities have specific rules. Self-employed can deduct eligible premium without reaching the required percentage of AGI threshold; Partnership, LLC and S Corporation business can pay the premium but must include amount paid as income to partner, member or shareholder, who deducts eligible premium without reaching the required percentage of AGI threshold. Most liberal rules apply to C Corporations, where 100% of premium can be paid and deducted from taxes by business without attribution to employee, and can discriminate. ​


​7.  Why should I buy Long-Term Care insurance if I might never use it?

 

For protection against the risk of a devastating loss. Similar to homeowners, health, automobile, or even life insurance, you hope you won’t have to file a claim. But you still buy the coverage because the financial risks are so high and burdens on loved ones could be so great that you can’t not get the protection. Chances of losing home in a fire are 1 in 1200. Chances of needing Long-Term Care services  are 1 in 2 (and 70% for those over 65 years of age). Unlike an investment, insurance claimants rarely talk about financial benefits. It’s more about how the coverage allowed for more dignity and care in the home or a better facility. Long-Term Care coverage is “peace-of-mind” insurance.


8.  How can I really tell if the nursing home taking care of my mother (or father) is good or bad? 


Look for or ask about the following: does the resident have privacy; is there a real activity schedule; how does the facility smell; how does the food look and taste; is physical therapy equipment modern and is there a P.T. on staff; is staff permanent or mostly agency supplied?  Check rating on web at health.usnews.com/best-nursing-homes.    Suggestion: visit often, unannounced, talk to staff to show interest and take them small treats as "thank you".


​9. Are my Disability Income insurance benefits taxable?


It depends on how the premiums have been paid for the policy. If the premiums have been paid with after-tax (personal) dollars, any benefits received are tax free. If the premium has been paid with pre-tax dollars, for example paid by an employer as part of a benefit package, any benefits received will be considered taxable income.


10. Are premiums paid for Disability insurance tax deductible? 


Premiums for individual Disability Income policies are not tax deductible. Premiums for Disability Business Overhead coverage (usually paid by the business) are deductible by the business. Disability Buy-Out policies (usually owned by the business partner of the insured) are not deductible.


11.  What is residual coverage (or rider) in a Disability income insurance policy, and is it important?


Residual disability benefits apply to disabling injuries or illnesses that do not totally disable the insured. If the insured can still perform most or all of the material and substantial duties of their occupation, but due to the disability has a loss of income, benefits are based on the residual disability coverage. Some carriers require a loss of time and/or duties, as well as a loss of income, to trigger benefits. Other carriers only require a loss of income. Residual coverage is very important. Without it, the insured must be totally disabled to collect benefits.


12.  In a Disability income insurance policy, what is the difference between true own-occupation and modified own-occupation definitions of total disability?


A policy that uses the true own-occupation definition will provide benefits if the insured cannot do the substantial and material duties of their own occupation, even fi they are working and earning income in another occupation. Some carriers will go further and recognize a medical or legal specialty as the occupation. A modified own-occupation policy will define total disability as being unable to perform the substantial and materials duties of the occupation and having no gainful employment in another occupation.


13. What is the difference between a policy  that is "non-cancellable" and one that is "guaranteed renewable"?


When a policy is non-cancellable (or "non-can") the carrier cannot change the premiums or policy provisions as long as the premiums are paid on a timely basis. if the policy is guaranteed renewable, the carrier can change (as in increase) the premiums but the policy cannot be terminated by the carrier as long as premiums are paid on a timely basis. With either type of policy, the policy owner (in most cases the insured) can cancel the coverage at any time. 











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Frequently Asked Questions

Joe Sperling, Insurance


Providing Comfort.

Protecting Family, Income, Assets.