Thursday, May 29, 2014

Long Term Care Considerations

In a previous blog found HERE, we discussed  general  guidelines  of planning for long term care.  We will now discuss further considerations in this blog.

Cost of Care

The majority of individuals provide for long term care through insurance.  The cost for those policies has been changing (increasing premiums or reducing benefits) over the past few years.  For example:

  1. Women frequently pay more because of their longer life expectancies and more expensive claim history.
  2. Age at the time long-term care begins also affects policy costs:  the younger the applicant, the lower the policy premium. Determining when to purchase a policy requires a cost/benefit analysis.  The younger you are, the longer you pay premiums but at a lesser premium rate.
Eligibility Requirements
A study by the American Association of Long Term Care Insurance (see Kiplinger Retirement Report, Vol 21, number 3, March 2014) showed that insurance rejection rates of policy applicants) factored in both age and medical conditions.  Twelve percent of applicants below age 50 were rejected.  The rejection rate rose to 17% for those age 50-59; 25% for those age 60-69; and 44% for applicants in their seventies.
Gate Keepers
When evaluating long term care policies, one should carefully analyze the “gatekeepers.”  These are the provisions which must be met before the policy will pay benefits.  Analyzing their provisions for benefit payment s is critical and should be done for your individual circumstances.
How To Pay
Some recent changes have been made that may allow an applicant to pay long term care premiums more “efficiently.”  Premiums can be paid with tax-free rollovers from cash value life insurance policies or deferred annuities.
You can also use money tax free from a health savings account.  Since contributions to such accounts are limited (based on individual age), these plans will cover only a portion of the insurance policy cost.
Paragon Financial Advisors does not sell insurance or any products.  On the other hand, we do assist our clients in planning for the cost of long term care.  Please call us if you would like to schedule an appointment to discuss your circumstances.  Paragon Financial Advisors is a fee-only registered investment advisory company located in College Station, Texas. We offer financialplanning and investmentmanagement.

Monday, May 12, 2014

Long Term Care Expenses

As the American population ages, they face the prospect of long term care expenses.  Some families faced this problem with their own aged parents and are now trying to decide how to handle the possible need for themselves.  As people evaluate their options, they are facing several factors.
Cost of Care
According to the insurer Genworth, the median US rate for a private nursing home room in the US is approximately $84,000 per year.  In Texas, that figure is $65,000 and in the Bryan/College Station area, it is $62,963.
Assisted living facilities cost $41,400 (median US; Texas is $42,270; and Bryan/College Station is $44,400. The annual inflation rate in Texas has been approximately 5% for assisted living facilities.
Method of Provision
Several alternatives to fund long term care are available:
  1. Insurance policies—Long term care insurance has been a method used by many to pay for care. However, this market is changing.  Some long-term care policies written in past years are not meeting actuarial assumptions; therefore the insurance caregivers are attempting to modify these contracts.   Newer polices are more expensive or have reduced benefits.  Policy premiums obviously vary depending on age and health of the policy applicant. In some cases, women are being charged more than men because their claims are longer (longer life expectancy) and more expensive.
  2. Self Fund- -Individuals may plan to pay long term care costs from their assets.  In this case, the obvious questions arise:
    • How long will the care be required?
    • What will be the inflation rate on cost of care?
    • What will be the rate of return on assets reserved for long term ca
  3. “Coinsurance” Planning- Individuals may opt for reduced insurance benefits and plan to supplement those benefits with personal funds.  You have many options available for long term care insurance policies; determining the appropriate policy requires considerable evaluation to ensure the policy you purchase best meets your needs.
If you are self funding, we recommend that you reserve at least three years (inflation adjusted) needs per person based on the cost of care in your area.

Paragon Financial Advisors do not sell insurance (or any products).  However, we do assist our clients in the evaluation of planning options to provide for long term care expenses.  Please call us if you would like to schedule an appointment to evaluate your circumstances.  Paragon Financial Advisors is a fee-only registered investment advisory company located in College Station, Texas. We offer financial planning and investment management.