Chart Your Course: A Legal Navigation Guide
Why Do You Need Long-Term Care Insurance?
This column presents general information regarding estate and disability planning and probate. It is not intended to create an attorney-client relationship or constitute legal advice to readers. Individuals with legal concerns should consult with an attorney for advice regarding their specific circumstances.
By Jessica L. Estes
If you are 65 or older, it is more likely than not that you will require some form of long-term care in the future. In the DC/Baltimore metro area, it can cost more than $100,000 annually for an individual. A married couple, if both spouses require long-term care, can cost twice as much. These costs can decimate a family’s hard-earned savings in a very short period of time. Thus, an effective estate plan should include a way to pay for this care.
What is long-term care? Long-term care is required when, for a period exceeding 30 days, an individual is unable to perform the basic activities of daily living such as bathing, dressing, eating, toileting, walking and transferring. Long-term care can include home care, adult day care, respite care and assisted living or nursing home services.
Although many people think that their health insurance will cover these costs, it does not. Instead, your options include paying privately with your own funds, qualifying for government needs-based benefits (Medicaid), or having a long-term care insurance policy that suits your individual needs.
Why do you need a long-term care insurance policy? Generally, most people do not have sufficient income or assets to fund their long-term care for any lengthy period of time. Similarly, the majority of us are not what the government deems “needs-based,” so we would not qualify immediately for any needs-based benefits. Rather, most of us are somewhere in the middle.
For anyone in this “middle” category, a long-term care insurance policy can be an effective tool to help pay for your long-term care, while at the same time allowing you an opportunity to preserve your assets and qualify for government needs-based benefits. For example, let us say you have a long-term care insurance policy that will pay benefits for five years and together, with your income, is sufficient to cover your long-term care costs in full during that five-year period. Potentially, you could give your assets to a child or a trust and use the long-term care insurance and your income to pay privately through that five-year period and then, at the expiration of the five-year period, apply for needs-based benefits. Because the gift occurred more than five years prior to the application for benefits, the gift would not be subject to penalty, you would be eligible immediately for benefits, and your assets would be preserved for your beneficiaries.
What should be included in any long-term care insurance policy? Generally, I recommend having an insurance policy that will pay benefits not only for nursing home care, but for home health and assisted living care. The policy should be for a three- to 5-year term, with an inflation rider of 3 to 5 percent, compounded if you can afford it. Moreover the shorter the elimination period — the period of time you have to wait before benefits are paid — the more costly the policy. However, a 90- to 120-day elimination period is typical.
You may also want to consider a policy that qualifies as a partnership policy under the Maryland Long-Term Care Insurance Partnership Program. Certain policies that qualify as a partnership policy will allow you to preserve assets in an amount equal to the benefits that were paid out on the policy if you ever need to apply for Medicaid. In other words, if you have a partnership policy that paid out $250,000 toward your long-term care and then you apply for Medicaid, you will be allowed to keep $252,500 in assets instead of the normal $2,500.
What if you never need long-term care? By far the biggest objection I hear to long-term care insurance is its cost. Despite the fact that the annual premium likely is less than one month’s cost in a nursing home, most people do not want to spend the money if there is a chance they will never use the policy. For those individuals, companies have created policies that can act as an annuity and provide a return of premiums if you never use it, or it can act as life insurance and provide a death benefit. Also, if you are married and you both can qualify for a policy, some policies will allow a transfer of benefits to a spouse if the other spouse does not use them.
The Maryland Consumer Guide to Long-Term Care provides information on the companies authorized to sell policies in Maryland, as well as detailed information regarding Maryland’s Partnership Program.
Jessica L. Estes is an elder law and estate-planning attorney at Byrd & Byrd, LLC with offices in Bowie and Prince Frederick. She can be reached at 301.464.7448 or on the website at byrdandbyrd.com