Monet Garden Pond with Chihuly Glass sculpture, DBG July 2014
This post is about the insurance industry’s response to our unprecedented longevity. Hmmm. . . . puzzling over the title of this one? Well, a couple interesting insurance developments have made it onto my radar screen recently and so I thought I’d write a post about them. I’ll focus on two in particular:
- Flexible long-term care insurance
We used to have a much larger number of companies offering long-term care insurance in this country, about 100+ ten years ago and now it seems we’re hovering around a dozen or so companies offering the policies. But it is important to note that there are still many misconceptions about long-term care insurance. Many people still mistakenly think that Medicare will cover this (it doesn’t) and that there will be plenty of Medicaid beds and service providers if they need care (the Medicaid coffers are still shrinking and doesn’t coordinate well with Medicare). I recently read about the prediction that the Medicare trust fund for hospital benefits will be depleted by 2026. Ouch! if I’m lucky enough to still be here, I will be eligible for social security benefits the following year. For a variety of reasons, long term care insurance has never really “caught on” in this country, at least in part due to the misconceptions that someone else will be able to pay for it if we are unable to pay and in need of such care. It also has to do with the fact that paying for these premiums is for providing the care that we hope we will never need to receive. But bottom line, it is about not being a burden on your family members – from a financial, medical or emotional perspective.
There are many different types of LTC policies available, with more variety than ever. This makes it even more important to understand and know what kind of policy it is you are purchasing and that it is the right one for your situation. As the number of old elders (80+) continues to grow, Long term care insurance still has hurdles in selling to the baby boomers. What happens if you pay all those years for coverage and then can’t afford the premiums anymore? What happens if you pay all those years and then die without ever having used any benefits? These and many other questions are now answered in new and interesting ways thanks to new and varied option for LTC. A standard feature of most of the new policies is that they provide coverage for home care, which can be more expensive than staying in a facility – so it’s not just “nursing home insurance” anymore. There are a number of different products available, so be sure to start with some good information about the basics of how these policies work. It is a good idea to remember that health care in this country is not cheap, and Medicare and “Medigap” only get you so far. And in case you’re wondering whether I am trying to “sell” LTC, I’m not – there are still plenty of risks involved in both purchasing the policies and investing in the companies offering those policies.
Bottom line is, the best way to ensure that unforeseen medical consequences do not decimate your financial well-being or that of you spouse as a result of the need for long term care – is to carefully consider your options now so that when you decide to make a choice, it will be a considered one and not made under the duress of crisis. Thinking about these matters now lessens the burden on your family members or loved ones in dealing with difficulties in the event they arise in an uncertain future.
- Longevity Insurance
Where did this new product come from? Changes in tax rules! This kind of insurance is essentially protection against running out of money in our ever-lengthening old age. Since none of us knows how long we will live, whether we will have saved enough for retirement, along with a few other life-altering details along those lines . . . this insurance looks to have big potential. Couple that with the emotional attractiveness of annuities, and we’re off to the races! Check out this recent NY Times article about some of the rules for these policies as retirement tools. What makes these policies “new?” The article considers the previous prohibition against using these annuities within retirement plans due to required minimum distribution rules. With the rule change “workers can now satisfy those rules if they use a portion of their retirement money to buy the annuities and begin collecting the income by age 85.”
But keep in mind that the sky is not the limit here and retirement plan participants can use no more than 25 percent of their total account balances, or $125,000, to buy the annuity, whichever is less. If you are considering these, you will want to carefully read all the fine print concerning these new vehicles. What is helpful to know is that, for the Americans that have saved some money for retirement (sadly, only about one-half of American households have a retirement account beyond social security), there are more options available.
©Barbara Cashman 2014 www.DenverElderLaw.org