How to Pay for Long-Term Care

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Other than self-insuring or relying on Medicaid welfare, let’s look other ways to pay for your long-term care: 


  1. Long-term care insurance. The least amount out-of-pocket for the largest return, but has no cash value. You’ll need to find out if you can qualify to buy long-term care insurance, because not everyone qualifies. Don’t assume you will be insured and don’t assume you won’t.
  2. Universal Life Insurance. With a long-term care rider, which does require underwriting like traditional LTC insurance but it has cash value, a good option for those who already have this kind of insurance they may be able to exchange their current cash-value life insurance for one with a LTC rider. This is also good for people who can afford it and don’t like “lose if not used” insurance.
  3. Annuity with a LTC rider. There are two types, one requires underwriting and one does not. Not available in all states. The annuity without underwriting is an option for those who cannot health qualify for standard long-term care insurance or universal life with a LTC rider because no health underwriting is required. Some people with a lot of cash in CDs, money markets, savings, etc. may consider this but if they can qualify for a single premium, Universal life with LTC rider is a better deal.


If someone decides to get standard long-term care insurance are there options with paying the premium?


You can pay the standard way, which is annual (cheapest), semi-annual, quarterly, or monthly (most convenient for some, also most expensive). Some companies have a ten-pay plan where you pay for ten years then your policy is paid up. Some have a paid-up plan up to age sixty-five, but you must be young enough to qualify.


You can also dedicate a certain amount of money (lump sum) to your long-term care policy on day one using the “single premium immediate annuity” or SPIA, purchased separately from the LTC insurance. 


The single premium means you pay a lump sum one time on an amount determined by your age and how much you would need for the annual long-term care insurance premium. The SPIA factor could be fourteen to eighteen times the annual premium. This lump sum stays in the annuity unless you die, at which time any unused money goes to beneficiaries. 


The way it works is that every year the annuity sends you a check and you use that to pay your long-term care premium. If you choose for example a fifteen-year guarantee (you can get ten or twenty-year depending on the company) and every year it pays out but in year ten you happen to die (let’s hope not). Your guarantee has five years left, so whatever money is still in the lump sum SPIA that hasn’t been paid out in the previous ten years will go to beneficiaries. 


The lump sum is also a fixed amount and at some point will be used up, but because it is a lifetime pay out, from that point on you still get an annual check but now it’s not your (original) money but the company’s money … they pay that annual amount for the rest of your life or until you die. 


With long-term care insurance when you are on claim, whether it be it three months or years, your premium stops as long as you are on claim … but the SPIA keeps paying the rest of your life so instead of using it for your LTC premium you can use it for a … new flat-screen TV … gift to kids or grandkids … whatever, it’s extra money.


Feel free to contact us if you have any questions.

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