Long-Term Care Insurance Offers More Choices
As healthcare costs increase, long-term care insurance companies offer more options.
A 2014 study by Genworth and the American Association for Long Term Care Insurance found that the majority (71 percent) of new claims under these policies are for home care – not nursing home care (16 percent) or assisted living care (13 percent) as many consumers believe. While nursing home care definitely ranks at the high end of the long term care cost spectrum, long term care insurance (LTCI) may also help cover the cost of in-home services from nurses’ aides, home health aides and therapists or services in an assisted living facility.
LTCI may alleviate the potential burden of someone becoming the primary caregiver for another in the event of chronic illness or disability. If you have hereditary conditions that may be passed on to your children, purchasing LTCI for them when they turn 18 may help prevent them from being ineligible for coverage later in their lives.
Premiums paid for LTCI policies can be deducted as medical expenses only to the amount by which your total medical expenses exceed 10 percent of your AGI. For taxpayers 65 and older, this threshold will be 7.5 percent through 2016. The policy must: 1) be guaranteed renewable, 2) not provide for a cash surrender value or other money that can be paid or borrowed, 3) provide that refunds, other than on insured’s death or cancellation of the contract, and dividends be used only to reduce future premiums or increase future benefits, and 4) generally not pay or reimburse expenses that would be reimbursed under Medicare.
The amount of qualified long-term care premiums you can include is limited. You can include the following amounts as medical expenses on Schedule A (Form 1040), according to the IRS:
Taxpayer’s Age at Year End | 2016 Deductible Amount |
Age 40 or younger | $390 |
Age 41 to 50 | $730 |
Age 51 to 60 | $1,460 |
Age 61 to 70 | $3,900 |
Age 71 or over | $4,870 |
Health care costs, including long-term care services provided in the home or in an assisted or skilled facility, can greatly impact your retirement finances. A 2013 study from the Center for Retirement Research at Boston College found that 52 percent of middle-income adults and 43 percent of high-income adults are at risk for a lower standard of living in retirement. Those rates would be even higher if they took healthcare and long-term care into account, the center said.
As with every product, long-term care insurance has its pros and cons but a large number of Americans haven’t even considered this product as part of their overall retirement planning. One of the biggest complaints against some long-term care policies has been their price tag. While most policies can potentially save their holders a great deal in medical costs, they can still be expensive.
Some people are simply confused about what the insurance is and how you can purchase it. So in an attempt to clear up some of the confusion, companies are beginning to simplify their policies and the process to buy the insurance. Companies are also teaming with more employers to add long-term care coverage to the list of employee benefits. This is similar to the way that group life insurance has become a staple of many companies’ benefits plan.
One final criticism comes from people who purchase long-term care policies and end up never needing them. While this is an obvious risk you take when purchasing any insurance, companies are now working to increase the benefit of having the insurance. Long term care policies are also becoming more flexible and more able to tailor policies to an individuals needs and are working to become more of an investment option, in some cases they may even combine an annuity feature.
With all of the improvements and added features of long-term care policies, more Americans may begin to take another look at this product. And while long-term care insurance isn’t for everyone, it may be a great addition to your retirement plan. You should always work with a financial professional before purchasing the insurance. Long-term care insurance may be worth considering, as the cost of medical care doesn’t seem to be slowing down any time soon.
Securities offered through Securities America, Inc. Member FINRA/SIPC. Jose R. Rodriguez, Financial Consultant. Advisory Services offered through Securities America Advisors, Inc. An SEC Registered Investment Advisor, Jose R. Rodriguez, Investment Advisor Representative. Rodriguez Financial Strategies LLC and the Securities America companies are unaffiliated. Written by Securities America for distribution by Jose “Rafi” Rodriguez, Retirement Income Certified Professional®. SAI# 1129255.2 Securities America and its representatives do not provide tax advice. Please consult your tax professional regarding your particular situation