As financial advisors in San Antonio, Texas who specialize in insurance planning, we see a lot of confusion when it comes to long-term-care insurance and life insurance. The distinction really matters.
If you are eligible for and can afford both, there are several reasons why you’d want both, the most important of which is they provide financial support at different stages.
What you don’t want is to think you have both when you really don’t.
Because November is long-term-care awareness month, we offer this quick breakdown:
What is Long-Term-Care Insurance?
Long-term-care insurance is a policy that provides coverage if you become unable to care for yourself and need assistance managing daily living activities. This can include the cost of an assisted-living facility, nursing home-care facility or at-home caregivers. Most regular health insurance and Medicare plans don’t cover the costs of long-term care, which can range from about $55,000 a year for a home health aide, to almost $106,000 a year for a private room in a nursing home.
According to statistics, about 70 percent of Americans will need some kind of long-term care at some point.
The majority of people who buy long-term-care insurance coverage do so in their 50s and 60s. The key to long-term-care insurance, however, is to consider buying a policy before you need it, because you may not be eligible for coverage if you already have a pre-existing condition, and the older you get, the more expensive your rates will become.
As for premiums, the rate you’ll pay depends on more than just your age. Insurance companies also take into consideration your health, marital status, gender, the amount of coverage you’re seeking and a few other factors to determine your annual premium. The price for long-term-care insurance can fluctuate, and premium rates are not locked in or guaranteed.
What is Life Insurance?
Basic life insurance doesn’t cover long-term-care needs. Life insurance is a policy that pays out a certain amount of money to your beneficiaries if you should pass away. Life insurance is designed to provide financially for your family in the event that you are no longer able to do so.
Like long-term-care insurance, your premium is based on a number of factors and may or may not increase over time, depending on the type of life-insurance policy.
Insurance planning is one of our specialties at PAX Financial Group. Contact our team to see how we can help you find the right coverage.
Why the Distinction is Important to Your Retirement Plan
It’s important to understand the difference between long-term-care insurance and life insurance (and any other insurance coverage you have, for that matter) so you’re not surprised by hefty medical bills when you thought you were covered. Long-term-care insurance helps pay for healthcare expenses during your lifetime, while life insurance helps pay for expenses after your death. Both are important protections and can prevent you or your family from having to withdraw money from retirement, but they serve drastically different purposes and come into use at different times in your life.
There are tax advantages to being covered as well. If you itemize deductions on your tax return, you may be able to deduct part of all of your long-term-care insurance premiums as medical expenses for tax-qualified long-term-care insurance policies. Talk to your financial advisor about the potential tax savings.
Life insurance premiums are generally not tax-deductible.
What Does Medicare Provide?
Medicare is a primary health insurance provider for Americans 65 years of age and older, administered by the federal government. When you turn age 65, you’ll be automatically enrolled in the basic program (Part A), which covers hospitalizations, but not much else. It pays for services that are considered medically necessary, and although many would disagree, long-term-care does not fall into that category. To put it bluntly, Medicare doesn’t cover full-time long-term nursing care.
What it does cover is part of the costs of up to 100 days in a skilled-nursing facility, 28 hours a week of home health care, and hospice care. This may not be enough for the 70 percent of Americans with long-term healthcare needs.
Medicaid may also help with some costs, but not until you exhaust most of your assets first.
What Can Happen When You Don’t Plan for Your Healthcare Needs
Imagine a scenario in which a person without long-term-care insurance develops Alzheimer’s and spends 10 years living in a semi-private room at a nursing home facility. Assuming 2020 rates (which are almost certain to increase), in Texas, the cost of care can be close to $1 million. That will put a dent in anyone’s retirement savings.
How to Decide If You Need Long-Term-Care Insurance
The way long-term-care insurance works is that it’s there if you need it, but if you don’t need it, you won’t get the money back. With that said, there is a chance you’ll pay for a policy and never use a dime. However, if you do need it and aren’t covered, you may not be able to afford the help you need. In this case, make sure you can access significant funds to pay for long-term care if you need it. Read our recent blog post: How to Plan for Long-Term Care (For You and Your Parents).
There are other alternatives, like whole life insurance policies, which is a hybrid type of insurance you can use during your lifetime if you need to pay for long-term care. You could also purchase a life-insurance policy that offers additional coverage for long-term-care costs.
The Bottom Line
Healthcare is expensive. Medical costs can be detrimental if you don’t have a plan to pay for them. The Coronavirus was a reminder for all of us that anything can happen. How do these what-ifs in life affect your financial plan?
At PAX Financial Group, insurance planning is one of our specialties. Our team of financial advisors in San Antonio, Texas is experienced and ready to help you review your options and plan accordingly. Don’t put off your insurance planning until you need it. Plan ahead of time! Contact us to see how we can help.
This material is provided by PAX Financial Group, LLC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The information herein has been derived from sources believed to be accurate. Please note: Investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs and expenses, and cannot be invested into directly. All economic and performance data is historical and not indicative of future results.