Dear [[First Name|Subscriber]],
Hello again,
On this day filled with sunshine, after a dreary cold and dark winter in which the daily news only spoke of economical downturn and unemployment, I am happy to share some great tips about how to invest in the future! Pete Berry of Pacific Crest Planning, Inc. sent me some great information on retirement and planning ahead financially so the challenges that come our way can be alleviated by careful planning. Here is what he had to say about ways to avoid spending money unnecessarily.
Long-Term Care Insurance “Are we paying for something we will never use”?
By Pete Berry
This is a question I hear in our practice constantly. No one likes to pay for something they will never use – especially if it is something as mundane as an insurance policy. Our Clients have started asking us about other strategies in funding their long-term care expenses, and we have helped them come up with some great “non-traditional” plans to help cover these risks.
There are a number of things that can force you to spend down your savings which could ultimately ruin your retirement, including, but not limited to: lawsuits and accidents, major medical issues, and bad investments. The risk of these events may be offset by transferring the risk to insurance companies, saving money to self-pay, or going on government assistance after spending down an estate (Medicaid).
With the average expense for nursing home care exceeding $80,000 per year in the state of Washington (every state varies somewhat, check statistics in the state you reside), one cannot ignore the impact to the economy, communities and individual estates over the next 20 years. The risk of a stay in a long-term care facility could be one of the most financially devastating incidents one could experience.
Without proper planning, a long-term care facility stay could also cause tremendous amounts of tension between the relatives that are charged with making decisions, and setting up the care for the individual that requires it. I have seen this impact my family, which has caused tension between siblings that still exists today, more than seven years since my grandfather passed away.
Because the US government cannot afford to take care of all aging Americans, the legislature has passed laws to allow individuals to deduct some or all of their long-term care insurance premiums on their tax returns. Just as the American consumer was allowed to start an IRA in the early 1970’s and claim a tax deduction for those contributions, the government has been attempting to relay this vital message. Then and now the message is the same – the government cannot take the risk on by themselves and succeed and national health care resources will not be adequate enough to handle the expenses associated with an aging population.
Individuals will need to plan for their own long-term care if they want to ensure that they are going to be able to maintain their independence. Just as our Social Security system is struggling to stay afloat, it is inevitable that the health care and long-term care system will soon experience the same challenges. Consumers must be aware of the arising issues and discuss how to avoid this life-changing problem.
A few years back, one of the largest insurance companies in the country ran an advertisement telling consumers that “...it doesn’t matter who you get it from, just get it”. The “it” the article was referencing was “traditional” long-term care policies that cover the costs associated with nursing home, or in-home care, funded with a monthly premium. These policies are great, but they tend to be expensive, and they are not easy to qualify for.
In short, when you need it, you can’t get it, and if you want it and can qualify for it, you may not be able to afford it. Not to cast more doom and gloom on the situation, but a lot of the insurance companies that sell long-term care insurance have miscalculated the cost associated with paying claims, and have been forced to raise the rates on those people that have purchased “traditional” long-term care insurance. This is due in part to the fact that medical technology is keeping all of us around longer, and this has increased the average length of stay in nursing homes.
So What Are The Options?
The three most common ways to pay for a long-term care stay are:
- Personal savings
- Insurance
- The Medicaid Program
What can happen to personal savings, if a long-term care stay is needed and some of the positives and negatives about “traditional” long-term care insurance has already been addressed, and I won’t go into more detail about Medicaid because that requires another column entirely focused on that concept. It is imperative to approach the risk management component of a person’s financial plans with individuality, so as to review all options to determine which option is best. What we have found through using this process is that a blend of personal savings and insurance, used in combination, create a way to preserve the estate without becoming insurance “poor”.
To address the long-term care funding needs this way has relieved stress for those concerned about the fixed expense with no chance for reimbursement if you do not use the protection.
There are contracts available which use the leveraging power of an insurance policy to create a “pool of funds”. If structured correctly, these can be used to fund the costs of a long-term care stay. Clients simply “re-allocate” existing assets that are being held in principal protected accounts so that these dollars now take on more work. They become “Double Duty Dollars”. The assets are positioned so that they are available for use if needed for an emergency, create a leveraged “pool” to use for long-term care expenses, or are paid back to the estate in the event of the client’s death. This type of contract does require some medical qualifications, but are usually less restrictive than traditional long-term care underwriting.
This option is attractive because the typical objections regarding traditional long-term care policies don’t apply to this type of plan. These plans allow the policy holder to have the same asset in their asset allocation model, but that asset will now “spring into action” with caregiving benefits should the need arise. If it does not, the policyholder’s estate will be reimbursed at the tax-free benefit minimum. If the policyholder becomes ill, the account will be available for care, if one passes without illness, the policy is paid as a tax-free benefit to the heirs. If an emergency arises, the cash value will be accessible to utilize. Now, if we could get an auto insurance policy to do the same thing we would all be excited!
The flexibility that these types of contracts offer give clients quite a bit of comfort when these types of comprehensive financial plans are utilized. Clients that receive these financial plans truly aren’t paying for something they will never use.
About the Author: Pete Berry has been a Tri-Cities Washington resident for over 30 years. He started working in the financial services industry in 2002. Pete and the rest of the Pacific Crest Planning, Inc. team have focused much of the firm's time and resources into different education forums for the community and their clients.They teach a retirement planning course at Washington State University's branch campus in Richland. They also can be heard on their live radio show (Focus on Business) on KONA AM 610 (Tri-Cities Washington area).
If you have any questions, or would like more information about Pete, or
Pacific Crest Planning, Inc, please contact him at 1-877-735-4477.
Editor's Note
I received an e-mail from one of our Prescott sponsors, Charles Walker of Walker & Walker Attorneys at Law, P.L.C. who is also a highly regarded estate planning attorney. He let me know that holographic wills in Arizona must be handwritten in the testator's own handwriting. This would make a will template invalid as a holographic will unless the testator rewrote the printed out version in accordance with Arizona law. Although LegalZoom does lay out the law in each state, other legal document websites may not; you may still want to seek the advice of a professional to ensure that the document is a legal valid document.
Mr. Walker informed me that he frequently deals with clients that have received or acted upon advice that was based upon
another state's law and procedures. This caused these clients additional problems,
(which translates into time, money and stress) because they acted upon
another state's laws, software seller, or non-attorney advice. If a will or other legal document is incorrect, it could mean that the person planning ahead may not have their wishes carried out.
Each individual state does have very specific laws regarding the legality of a will or other legal documents, and these can vary widely from state to state. It is always important for a person who is pursuing any type of legal issue to verify that they are proceeding in a way to ensure the validity of any legal document in the state the person is pursuing legal action.
Until Next Time...
Shannon Wood
Editor
Innovaging
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If you have any questions, concerns or comments regarding these topics, or you would like to suggest another topic of interest, please e-mail Shannon at shannonw@lawtonprinting.com.
