Navigating Long-Term Care: Understanding Insurance Solutions and Asset Protection

Raymond Bell |

Many individuals assume they will never require skilled nursing care, and if they do, they believe Medicare will handle it, eliminating the need for concern. This misconception often arises from a lack of understanding the distinction between Medicare and Medicaid. Medicare is a federal health insurance program that we contribute to and receive coverage from starting at the age of 65. On the other hand, Medicaid is a joint federal and state public assistance healthcare program designed for the underprivileged, serving as the largest payer of long-term care services in the nation.1

Under Medicare, skilled nursing care services are covered if certain criteria are met. These include a recent hospital stay lasting a minimum of 3 days and admission to a Medicare-certified facility within 30 days of the previous hospitalization to receive skilled care. Once these conditions are fulfilled, Medicare covers 100% of the expenses for the first 20 days. From day 21 to 100, you are responsible for up to $170.50 per day, with Medicare covering the remainder. After day 100, you are entirely responsible and expected to deplete your assets before Medicaid will step in to cover skilled nursing care services.

The reality is that we are living longer, and it is projected that by 2030, 7 out of 10 people will necessitate long-term care services at some point in their lives.2 The likelihood of requiring long-term care services and depleting your retirement savings and selling your home to qualify for Medicaid is significant. Such circumstances could significantly impact your spouse's lifestyle and retirement. Moreover, the legacy you hoped to leave for your children might vanish. However, by planning ahead, you can alleviate the consequences of experiencing a long-term care event and safeguard your assets.

Various insurance solutions exist to protect your assets or leverage the funds you have set aside for a potential long-term care event. These solutions provide benefits if you are unable to perform two or more activities of daily living or suffer from severe cognitive impairment, typically with a 90-day elimination period.

Here are some of the options available:

1.       Traditional Long-Term Care Insurance: Offers a cost-effective benefit covering long-term care services for a period typically ranging from 2 to 5 years. A 3% to 5% cost-of-living adjustment rider can be included. The downside is that if the benefits are not utilized, they are forfeited.


2.       Hybrid or Asset-Based Solutions: These have gained popularity recently and have a cash value, along with a death benefit if the long-term care benefits remain unused. They combine a permanent life insurance policy or annuity with a qualified long-term care policy, allowing for a lifetime benefit. These solutions can leverage your assets to provide a more substantial benefit. While they primarily focus on long-term care, the death benefit and cash value are secondary. Upon surrendering the contract, most, if not all, premium dollars can be returned. However, the premium outlay is typically high, either as a single premium or over a span of up to ten payments.


3.       Permanent Life Insurance with a Qualified Long-Term Care Rider: Similar to asset-based or hybrid solutions, this option utilizes a permanent life insurance policy, with the long-term care rider as a secondary benefit. The qualified long-term care rider typically accelerates between 2% to 4% of the death benefit monthly until the benefit is exhausted or the insured passes away. One advantage is the ability to address two needs with a single product, but this may leave the beneficiary with reduced or no life insurance benefit.


4.       Life Insurance with a Chronic Illness Rider: These riders are available on most permanent policies and some term policies, with the benefit payout varying considerably. Some function akin to the qualified long-term care rider, while others use a lien or discounting method to determine the available accelerated benefit. The advantage of the latter approach is the absence of monthly charges and no need for morbidity underwriting. However, the disadvantage is that the cost and benefit amount are uncertain until the time of the claim, potentially leaving the beneficiary with a reduced death benefit.

While each of these solutions has its pros and cons, combining them can help mitigate their respective drawbacks. While none of these solutions can fully cover all long-term care needs, even if they cover 80% or 50%, it is better than having no coverage at all.

It's essential to remember that this material offers only general descriptions and is not a solicitation to sell any insurance product or security, nor does it constitute financial or tax advice. For information tailored to your specific insurance needs or situation, please contact your insurance agent. This article aims to provide general education about insurance and does not intend to offer personal service. It may not consider your unique characteristics such as budget, assets, risk tolerance, family situation, or activities that could impact the most suitable insurance type for you. Additionally, state insurance laws and underwriting rules may influence available coverage and costs. Guarantees are contingent on the claims-paying ability of the issuing company. For more information or personalized advice, consider consulting an insurance professional or visit your state's insurance department. Annuities are long-term, tax-deferred investment vehicles designed for retirement purposes, and gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Withdrawals made before age 59 ½ are subject to a 10% IRS penalty tax, and surrender charges may apply.

Securities offered through LPL Financial, Member FINRA/SIPC. Investment Advice offered through WCG Wealth Advisors, LLC, a Registered Investment Advisor. WCG Wealth Advisors, LLC and The Wealth Consulting Group are separate entities from LPL Financial.

[1] CRS analysis of National Health Expenditure Account data obtained from the Centers for Medicare & Medicaid Services, Office of the Actuary, prepared November 2017.

[1] 2019 U.S Department of Health and Human Services (www.longtermcare.govopens in new window)