Protecting assets should be a major consideration in any financial plan. With people living longer, keeping assets protected and available throughout a lifetime is every bit as important as accumulation. Unfortunately, with health care costs increasing, assets can quickly be exhausted due to long-term health care expenses. People with accumulated assets should consider purchasing insurance to protect their assets.
The need for long-term care
Long-term health care may include a variety of services, such as medical and nonmedical care to people who have a chronic illness or disability. Most long-term health care is to assist with daily living support services. Long-term health care can be provided at home, in the community, in assisted-living facilities or in nursing homes.
Consider the following about long-term health care needs:
• Approximately 70 percent of people over the age of 65 will require long-term care at some point. (Source: U.S. Department of Health and Human Services, National Clearinghouse of Long-term care information, longtermcare.gov, September 2008)
• Average median cost for a private nursing home room in 2010 was $85,775 per year. (Source: John Hancock 2011 Cost of Care Survey.)
Additionally, Medicare generally doesn’t pay for long-term health care. It pays only for medically necessary skilled nursing facility or home health care.
Paying for health care expenses
While it may be possible to save or use accumulated assets to pay expenses for long-term health care, several factors need to be considered. For example, you’ll need to determine how much may be needed, and the amount would require estimating the type and length of service that may be necessary.
Additionally, income and assets set aside for other retirement goals may be jeopardized if health care costs are higher than expected. And while you could invest for the potential expenses, investment risk may be a factor. Putting money in a conservative account may not keep up with the inflationary costs of health care; a more aggressive account may be impacted by market downturns when money is needed.
Long-term care insurance benefits
A potentially more efficient and effective alternative is an insurance policy that would provide the dollars needed to cover long-term health care expenses. Consider the following advantages of an insurance policy:
Policy guarantees. A guarantee, backed by the claims-paying ability of the issuing company, provides the assurance that money will be available to pay long-term care expenses when needed.
Investment freedom. You won’t need to be concerned with investment performance of assets set aside to pay expenses since an insurance policy shifts the responsibility for asset availability to the insurance company.
Leverage. The capital required to purchase insurance protection is typically less than that needed to pay for expenses due to the leverage insurance provides. As a result, you may have additional capital available for other uses.
Tax benefit. Qualified long-term care insurance policies pay an income-tax-free benefit.
Life insurance with long-term care riders
Traditional long-term care insurance is typically the least expensive way to insure a long-term care risk. However, if long-term care is never needed and no benefits are received, the premiums paid are lost. To avoid this “use it or lose it” aspect of traditional long-term care insurance, several life insurance companies have developed insurance policies combining long-term care protection with a life insurance death benefit. In these policies the value of the death benefit is available to pay for covered extended health care services after the elimination period has been satisfied. Also, some companies offer a long-term care benefit value up to three times the amount of the death benefit. This provides an even greater degree of protection from the high cost of long-term care.
Return-of-premium or cash value
In addition to combining long-term care benefits and death benefits, some products offer a return-of-premium feature, which ensures that if the policy is surrendered prior to claim, the original premiums paid will be returned to the policy owner.
Determine a plan that’s right for you
It’s critical to have a plan for protecting hard-earned assets from the escalating costs of long-term health care. Leaving assets susceptible to these expenses could prove disastrous and jeopardize your financial assets.
This article was written by Wells Fargo Advisors and provided by Kit Carson, a wealth management insurance specialist, Contact him at 775-823-4823. Investment and insurance products: Not FDIC insured, no bank guarantee, may lose value. Guarantees are based on the claims-paying ability of the issuing insurance company. Insurance products are offered through affiliated non-bank insurance agencies. Not available in all states. California Insurance License Number 26-0070024. Please consult your legal advisors to determine how this information may apply to your own situation. Wells Fargo Advisors LLC does not provide tax advice. Whether any planned tax result is realized by you depends on the specific facts of your situation at the time your taxes are prepared. Insurance and Investment Products: NOT FDIC insured; NO Bank Guarantee; MAY Lose Value. Wells Fargo Advisors is the trade name used by two separate registered broker-dealers: Wells Fargo Advisors LLC and Wells Fargo Advisors Financial Network LLC Members SIPC, non-bank affiliates of Wells Fargo & Company. This article is copyright 2012 Wells Fargo Advisors LLC. All rights reserved.
