Show #430 Airing Sunday, 4/20/08
You’ve worked hard to leave your heirs an inheritance, not a stack of bills. But many people who fail to plan ahead end up leaving their loved ones a “negative inheritance”. Here with positive advice to protect your family from a negative inheritance is our financial quarterback, Jim Lineweaver.
Question: There’s a new financial phrase going around that’s kind of scary—can you explain?
Answer: Here is a new term coined by economists as reported in the Wall Street Journal in January of this year. It is negative inheritance.
A negative inheritance occurs when the cost of caring for their parents due to health issues is greater that any gifts, bequests, or inheritance they will receive.
Question: How do we approach avoiding negative inheritance?
Answer: Do you want to self insure, or purchase protection against having your life savings, and then some, wiped out due to nursing or home health care costs? That is the basic question. I think it is at least worth looking at the cost of insuring for potential devastating long term health care costs. So where does the average person start.
Question: Does self-insuring make sense?
Answer: Consider first that the average cost of a nursing home in Northeast Ohio for 2006 was almost $75,000 per year. This number comes from the annual MetLife survey of the cost of nursing home costs.
Then multiply that by the length of the average stay of about three years, and you can see the impact on your life savings will be if you decide self-insuring is the best route.
Question: Where do you start looking for Long-Term Care Insurance?
Answer: Your employer may offer optional long term care coverage. Since this would be group coverage, it may be lower that what you can find on your own. And that group coverage may be able to be extended to other family members, including your parents.
However, you need to make a comparison of the benefits available through group coverage; is it more restrictive in allowing the carrier to cover your needs.
Many individual policies cover costs when the policy holder cannot perform 2 of 6 activities of daily living (ALD) including bathing, dressing eating and using the bathroom. Some group policies only look at 5 ADLs, eliminating bathing. This may make it harder to qualify for coverage.
If you don’t have any group coverage available, look at coverage from those carriers which have the highest ratings, from rating agencies like Moody’s, A.M. Best and Weiss.
You want to know that the company is of the highest financial strength, so you have added comfort in knowing they will be around in 20 years if you should need the coverage. Some of the higher rated providers include Genworth, John Hancock, Allianz, MetLife, and Prudential.
Question: What choices or options should you consider when choosing LTC insurance?
Answer: Do you want to be in a nursing home? Do you want to choose it yourself or let the carrier choose it for you? Would you prefer to have the care come to you at your home? Different policies give you different options.
Next start thinking about the daily benefit you think will protect your family and your asset base. That average annual amount for a private room at a nursing home in NE Ohio is $205 per day. Do you want to save some money? You can do so by sharing a room in the nursing home with someone else. That brings the average cost per day down to $190.
Do you want coverage that will cover the entire cost, or do you want to partially cover it? Keep in mind that as our population continues to age, this will continue to put strains on our health care system, which will only lead to higher costs. So think about what that nursing home room or home health care will cost you in the future.
It is estimated that by 2030 the annual cost of nursing home care will be $190,000. So if you are considering insurance protection, the younger you are the more you will need a policy with a daily benefit that has some cost of living protection.
Question: LTC insurance often has an elimination period. What’s that?
Answer: The elimination period can be thought of as a deductible with long term care insurance. During the elimination period, the carrier covers none of the costs; it either comes out of your pocket or Medicare’s. Make sure you know who will pay during this period.
I have learned from personal experience that you may not have the coverage you thought you have. My Dad had a heart attack and a stroke, and found himself in a nursing home. We all know that Medicaid covers the first 100 days, but since my Dad didn’t have three consecutive days of improvement he didn’t get the 100 days of coverage and was kicked off of Medicare.
This will start to get you to the point where you can begin to examine costs. But keep in mind, these costs may be reduced by potential Federal and State tax savings due to the potential deductibility of premium costs. Long term care insurance premiums are 100% deductible on your Ohio tax return, and there is a table that shows how much of the cost is deductible on your Federal return. Call us and we can get you a copy of the table.
Question: That sounds very confusing!
Answer: It is. If you think it is too confusing to make a decision now, the cost of waiting may be greater than you think. You don’t know when your health might change for the worse, which could impact the cost of coverage, or could eliminate the potential for getting coverage at all.
The younger you are when you start coverage, the lower your rates will be. There is no guarantee that your rates will not go up in the future, but the insurance company cannot discriminate against policy holders. If they do raise rates, they need to do it for all policy holders in the same age group and for all policy holders across the entire state.
Now, let’s make you head spin even more. With traditional LTC coverage the benefits are there if you need them, but if you don’t need the coverage all of your premiums are a non-recoverable expense.
Recognizing the public’s problem with this, the insurance industry now has LTC policies that have an optional additional cost rider that will return you premiums to you or your family if you never need the coverage.
Let’s go one step further. If life insurance coverage is beneficial for you and your family for estate planning purposes, there are life insurance contracts available today that will pay for nursing home expenses. Rather than the death benefit being payable to your beneficiaries only at your death, you can access the death benefit while you are alive to cover your nursing home expenses. If you don’t need the nursing home coverage, the policy will pay your beneficiaries at your demise. You may even be able to use the policy to cover other emergencies while you are alive, depending on the way you pay for the coverage.
Many people are not concerned with leaving their family anything after they are gone, but make sure you don’t give you kids a negative inheritance.
You may not be concerned about leaving your family with an inheritance after you’re gone. But you sure don’t want to leave a negative final impression by leaving them with a negative inheritance. For more information about how Long-Term Care Insurance can protect you and your family, give the Lineweaver Financial Group a call. The number’s next.
