Term Services and Supports Trust Act ( also called the Long Term Care Trust Act ). The first of its kind in the nation , the payroll-tax-funded program was supposed to go into effect in January 2022 , letting anyone who owned private long-term-care coverage before November 1 , 2021 , opt out of the tax .
The program has been delayed , however , while legislators iron out issues such as how to handle self-employed people or those who work in the state but live and / or retire elsewhere . Consequently , payroll deductions won ’ t actually start till July 2023 , and benefits won ’ t become available till July 2026 .
Still , in the six months before the November 2021 deadline , more than 450,000 people in the Evergreen State reportedly purchased coverage .
California , New York and a few other states are weighing similar programs .
Federal Legislation More recently , in the nation ’ s capital , senators have been debating the Long- Term Care Affordability Act . If passed , it will permit long-term-care insurance premiums to be paid directly from 401 ( k ), IRA and other retirement accounts without a penalty for early distributions .
“ This would be game-changing ,” says Howard Sharfman , senior managing director at NFP Insurance Solutions in Chicago . It would “ allow clients to pay for LTC [ coverage ] with before-tax dollars and would significantly change the customer ’ s mindset in a positive way ,” he says .
Mindset is important for persuading clients to purchase coverage . But helping them understand the various options is another challenge .
Broadly speaking , there are two types of policy : stand-alone long-term-care plans and hybrid or linked plans that offer long-term-care benefits as a rider to a life insurance policy or an annuity . Stand-alone plans tend to be less expensive but harder to qualify for . Most are pay-as-you-go , and rates can increase , though some plans allow you to lock in rates by paying a lump sum in advance or in preset installments . Hybrid policies , on the other hand , almost always require a big up-front payment .
“ For males , hybrid policies are typically about twice the cost [ of stand-alone policies ], and for females they ’ re about 25 % more ,” says Ari Fischman , an advisor at Telemus Capital in Southfield , Mich .
Deciding Between Options
But some clients are “ looking not just at cost / benefit but also at factors such as product flexibility , the availability of additional features such as a death benefit , or guarantees on premium costs ,” says Ken Latus , vice president of risk products at Northwestern Mutual . “ Managing LTC risk should be considered in the context of broader planning needs .”
There are also different deductibles , benefit limits , caps on the length of time you can receive coverage , and “ exclusion periods ,” which refer to how long you have to wait before coverage goes into effect . Adjusting any of these variables can alter premiums .
It ’ s estimated that 70 % of people who turn 65 will need these services at some point , and the average price tag is some $ 90,000 a year .
Benefits can vary , too . Some hybrid policies only cover “ chronic illness ,” which is more limited than full longterm-care protection . Coverage triggers could differ . For instance , while traditional policies go into effect once you need help with at least two “ activities of daily living ”— eating , dressing , etc .— some chronic illness plans may require physician certification .
Why Hybrid Plans Remain Popular
For many people , though , what ’ s most appealing about hybrid plans is that even if you never use the longterm-care benefit , you still have a taxfree death benefit for your heirs .
“ The biggest resistance to purchasing LTC insurance is paying the premium and ‘ not getting anything in return ,’” says Len Hayduchok , a certified retirement planner at Dedicated Financial Services in Rehoboth Beach , Del . “ The death benefit feature is attractive for consumers who do not properly understand the concept of risk and the purpose of insurance .”
To put it another way , hybrid plans “ don ’ t have a ‘ use it or lose it ’ feature ,” says Tom Beauregard , CEO of HCG Secure in Goshen , Conn ., which sells long-termcare insurance . “ These policies make sense for families that want the comfort of having LTC benefits and a guarantee that their beneficiaries will receive a benefit if they don ’ t exhaust it .”
Understanding The Economics
To be sure , many clients don ’ t want to think about long-term care at all . Yet it ’ s estimated that 70 % of people who turn 65 will need these services at some point , and the average price tag is some $ 90,000 a year .
“ LTC costs cause many families financial devastation ,” says Sharfman at NFP Insurance Solutions . “ This is very important coverage that should be considered sooner rather than later .”
Health insurance and Medicare don ’ t cover long-term-care expenses ; only Medicaid does . But to qualify for Medicaid , you have to be impoverished . Generally , that means having no more than $ 2,000 in liquid assets .
Many states , however , offer insurance partnership programs that exempt long-term-care benefits from Medicaid eligibility calculations . So if you receive $ 100,000 in LTC benefits , say , it won ’ t count against your Medicaid eligibility .
“ That ’ s an extra source of value ,” says Glickman at BuddyIns .
Ultimately , the choice of long-termcare coverage depends on someone ’ s personal circumstances and priorities . “ As with lots of financial decisions , it is as much an emotional decision as an analytical one ,” says John E . Roessler , a senior financial planner at Chicagobased Kovitz .
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