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Annuities and Long-Term Care: 2010 News and Views
By: Life Certain Wealth Strategies
A Respond Buyer's Club Member
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You may have heard recently about new tax savings related to long-term
care coverage. The news is that some provisions of the Pension
Protection Act of 2006, which are designed to help individuals pay for
their long-term care coverage, went into effect January 1. Individuals
will no longer have to pay federal income tax on the proceeds from an
annuity if those proceeds are used to pay for long-term care coverage.
That means that chronically ill or disabled people with annuities will
no longer have to rely on their own private long-term care policies or
Medicaid to pay for costs related to long-term care.
With that change by the Pension Protection Act, a number of hybrid
annuity policies that also carry long-term care coverage have cropped
up. These new products allow policyholders to use the proceeds for LTC
coverage, for income or for both. The proceeds that go to paying for
long-term care costs for the policyholder would not be subject to
federal tax. That could mean some tax-deferred gains.
But are they for you? You should know that these long-term care
annuities work best for those in high tax brackets who believe they
will be in a lower bracket by the time they would need to draw on that
coverage. They also are a bit complex.
Research these hybrids before plunging in. Start by consulting both a
financial advisor and a tax expert to see if this alternative is for
you. Compare these hybrid policies against the standard long-term care
policies out there. Keep in mind that the hybrids are generally
regarded to offer less LTC coverage in duration of benefits. That
means, unless you have a significant amount to invest, these hybrid
policies may not last beyond a few years of benefits. Financial and tax
experts will be able to demonstrate to you how much coverage you can
buy based on the size of the annuity you can afford.
How knowledgeable are you about long-term care policies in general?
Knowing the basics before talking to a financial professional will
facilitate the discussion when you meet.
Long Term Care Checklist
* Do some comparison shopping Not all policies cover
the same services. A basic LTC insurance policy will pay for assistance
with activities of daily living including eating, dressing, bathing,
toileting, incontinence, and transferring (bed to chair,
etc.). Each policy lists the types of services that are
covered under nursing home care and under home health care.
Homemaker services are generally covered and other services as listed
in the policy.
* Evaluate the help you can count on These days many people
needing LTC wish to remain at home or in an assisted living facility.
Do you have family and friends who you can truly count on to help with
your care? This will need to be factored in.
* Assess your current health The most affordable deals in LTC
insurance are offered to individuals in good health who are
around the age of 55. But your family health history and your
current health status are the real determinants of what your LTC
insurance policy will cost. It may turn out that you do not qualify for
coverage. The sooner you start looking into LTC the better as the need
for care can strike at any time. Statistically, forty percent of
long-term care is provided to individuals between the ages of 19 and
65.
* Read each policy thoroughly A qualified LTC policy
won’t go into effect until the covered individual is unable
to perform two tasks of daily living for a specific period of time,
typically 90 days, or when that person needs substantial supervision
related to cognitive impairment. Some policies are more restrictive
than others. More affordable policies generally take longer to kick in.
Read the fine print and see if coverage for other physical ailments is
available as part of the policy and what per-diem or monthly allowances
are offered.
* Keep your options open The idea is to cover every
eventuality. The best-designed LTC policies will pay the same amount of
benefit whether care is received in a long-term care facility, an
assisted living facility, an adult day care center, or in the
home. Some policies do offer reduced percentages for home
health care versus nursing home care, but it’s a better idea
to keep full percentages on home health care benefits, when the time
comes, since most people would rather stay in their homes.
* Check the insurers’ track records What is the
financial health and track record of these companies? You always should
verify this, but it is especially important with complex hybrid
policies.
* If you are single and female It makes good sense for women,
who generally live longer than men and also may have fewer earnings to
help them in later years, to take a heightened interest in providing
for their long-term care safety net.
Courtesy of Herb White, MBA, CFP, a Certified Financial
Planner™ with Life Certain Wealth Strategies in Greenwood
Village, Colorado, www.lifecertain.com, (303) 793-3999. Securities and
investment advisory services offered through Woodbury Financial
Services, Inc. Member FINRA, SIPC and Registered Investment
Advisor. Life Certain Wealth Strategies and Woodbury
Financial Services are not affiliated entities.
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