Using a HECM Instead of Long-Term Care Insurance

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One Financial Planner Suggests Two LTC Insurance Alternatives

reverse mortgage newsIf you were to eavesdrop on a typical meeting with someone in their 50’s with their financial advisor, chances are you would here the sensible advice to purchase long term care insurance. This practical recommendation is rooted in the fact that nearly 70% of those aged 65 and older will need long term care services at some point in their lifetime. However skyrocketing long term care premiums has one financial planner recommending alternatives.

George Gagliardi is a certified financial planner focused on creative solutions to help preserve and grow his clients’ assets. A recent MarketWatch article shows that Gagliardi is skeptical of traditional retirement advice when it comes to protecting his client’s assets from the ravages of health emergencies and long-term care costs. Long term care costs are not the only threat, the other is the risk of exploding premium rates.  Federal employees participating in the long-term care insurance program learned this harsh lesson in 2016 when their premiums jumped 126%. Two choices were offered- pay the higher premium and retain your current coverage or pay the same premium for less coverage. A spike in premiums had a direct impact on a senior’s cash flow and quality of life.

Few financial planners stray from conventional recommendations and approaches to asset management and preservation. Unfortunately, conventional wisdom yields typical results. Gagliardi takes a different approach favoring two alternatives: hybrid long term care policies and the Home Equity Conversion Mortgage.

Giving LTC Some TLC: Planning for Long-term Care

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Do your reverse mortgage prospects and clients have a plan for the unexpected?

According to a recent survey of 449 financial advisors, even prudent seniors overlook a critical component of retirement planning. When the experts were asked, “What’s the biggest threat to the financial security of retirees?” the number one answer was “healthcare expenses.”

Seniors And Planning For Long-term Care,Yet these advisors were not focused on medical expenses, but on the cost of non-medical long-term care. It’s vital that seniors prepare for such contingencies.

Why do 75-80 percent of Americans lack a plan for long-term care (LTC)? In a recent Life Planning Network webinar, Allen Hamm, author of Long-Term Care Planning, said there are two main reasons:

  • Lack of awareness: Half the population does not understand the risks of living into old age, and the need for assistance that will likely arise;
  • Lack of trust: long-term care insurance is expensive, and having the insurance industry lead the conversation is a backwards approach.

Older adults also don’t believe (or don’t want to believe) they’ll need help. Not too long ago, people retired and died within ten years. Now we’re living a “whole new generation in retirement,” says Hamm.

While many people believe Medicare will cover LTC, it’s false comfort: Medicare only reimburses for hospitalization up to 100 days, which is considered short-term care.

Long-term care, by contrast, usually involves activities of daily living (ADL) and can continue indefinitely. Hamm cites the five most common situations in which a senior might need LTC:

  1. Alzheimer’s and memory care
  2. Parkinson’s Disease
  3. Strokes, which can leave people in need of assistance with ADL
  4. Heart and circulatory conditions, especially if combined with diabetes (which can create memory issues)
  5. Frailty due to longevity

LTC takes its greatest toll on women, who have traditionally been the family caregivers. Explains Hamm, “Because women outlive men by an average of seven years, and men tend to marry women a few years younger, men intuitively know their spouses will take care of them. But who will take care of their wives?

“When the husband dies and the wife needs assistance, she usually ends up moving to assisted living or into a nursing home.”

There are four basic ways to pay for LTC:

  • Family support: a spouse, child or other relative may choose to quit their job or reduce their hours in order to care for the parent/relative
  • Medicaid (MediCal in California)
  • Personal assets
  • LTC insurance

Reverse mortgage (a component of personal assets) can be a viable way of meeting LTC needs, as long as it is thought through carefully, Hamm says. For instance, if the senior is going to remain in their home, what home modifications might be necessary to “age-proof” the house and make it viable for both senior and eventual caregiver?

Another option is an LTC rider on a regular insurance policy. This form of “hybrid insurance” enables the policyholder to draw on the rider if they need it later in life; if they pass away early, the rider pays the beneficiaries.

Though there is no “perfect age” at which to sign up for LTC insurance, a good time to opt in is between 50 and 60, says Hamm, since this is a time of life when:

  • We can prioritize our level of risk
  • Health is normally still good enough to qualify for coverage
  • The premium is usually still affordable (i.e., LTC makes sense as an economic value)
  • Someone’s risk tolerance is typically more conservative than when they were younger.

As with all later life decisions, the best course of action is for young seniors, or those not yet seniors, to familiarize themselves with all the options available. While life is more fun lived on the bright side, planning for the unexpected is smart. It’s easier to relax and enjoy retirement when you know that whatever happens in the remaining ten, 20, 30 or more years of life, you’re covered.