Does long-term care insurance protect your assets?

As you enter retirement, maintaining your assets and nest egg is a top priority. With the potential for needing long-term care services as you age, many wonder if long-term care insurance can help protect assets if care is needed.

The short answer is yes – long-term care insurance is specifically designed to cover services that help you stay independent while protecting your savings and assets.

In this article, we’ll explain how long-term care insurance works, what services it covers, how it protects assets, and key factors to consider when purchasing a policy.

What is Long-Term Care Insurance?

Long-term care (LTC) insurance is coverage that helps pay for extended health services when you can no longer perform normal daily activities like bathing, dressing, and eating. It covers care provided at:

  • Your home
  • An assisted living facility
  • A nursing home

Long-term care insurance pays for custodial care and personal assistance that isn’t typically covered by health insurance or Medicare. This includes help with:

  • Bathing
  • Dressing
  • Using the bathroom
  • Transferring from bed to chair
  • Eating
  • Continence care
  • Medication management
  • Dementia care

Long-term care policies provide coverage for a specific time period (e.g. 2 years) or total dollar amount (e.g. $150,000 total). This helps you pay for services without liquidating all your assets.

How Can Long-Term Care Insurance Protect Assets?

Relying on retirement savings or your nest egg to pay for long-term care services could quickly drain your finances. Just one year of nursing home care averages over $90,000.

Long-term care insurance protects assets in several key ways:

Covers Expenses Health Insurance Doesn’t – LTC insurance helps pay for custodial personal care and assistance with daily living – services traditional health plans don’t cover. This protects your assets from being depleted paying out-of-pocket.

Prevents Premature Asset Spend Down for Medicaid – For many, long-term care can cost more than their total assets. LTC insurance delays or prevents spending down assets to qualify for Medicaid.

Provides Alternatives to Nursing Home Care – Policies can cover in-home care, allowing you to protect assets while staying in your home vs. a facility.

Creates a Long-Term Care Fund – Instead of liquidating assets suddenly, LTC premiums build up a source of money over time that can be used for future care costs.

Covers Copays/Deductibles – Even with health insurance, copays for care can add up. LTC helps cover cost-sharing amounts.

Pays for Care During Medicare Waiting Periods – LTC insurance kicks in to pay for care during delays for Medicare coverage like the 100 day skilled nursing facility care requirement.

Allows Spouses to Protect Shared Assets – If one spouse needs care, the other’s assets are also at risk. LTC policies on both spouses better protect joint assets.

What Types of Long-Term Care Insurance Are Available?

There are several types of policies and features to consider:

Partnership Long-Term Care Insurance – Partnership policies allow you to protect a portion of your assets if you exhaust benefits and need Medicaid to continue coverage. Available in some states.

Hybrid/Life Combo Policies – These offer long-term care coverage plus a death benefit like a life insurance policy and can be used for any purpose.

Tax-Qualified Policies – These allow you to deduct premiums and have benefits paid tax-free. Qualified plans have a daily or monthly dollar limit.

Non-Tax-Qualified Policies – These have flexible benefit limits like a total lifetime amount. Premiums aren’t deductible and benefits may be taxable.

When choosing a policy, consider your specific needs and asset protection goals. A licensed insurance agent can help you select the right LTC insurance.

Key Factors That Impact Asset Protection

While long-term care insurance can certainly help shield assets, there are some variables that impact how much protection is provided:

  • Daily/Monthly Benefit Amounts – Policies with higher maximum benefits provide better asset protection. Avoid plans with very low coverage limits.

  • Benefit Increase Options – Compounding options that increase coverage over time keep better pace with rising care costs.

  • Length/Type of Coverage – Policies with longer maximum coverage periods or lifetime benefits offer better asset protection.

  • Covered Services – More services covered means lower out-of-pocket costs you’d pay from assets. Home health care is ideal.

  • Inflation Protection – Plans that increase benefits to match inflation maintain the value of coverage over time.

  • Elimination Period – Choose a shorter waiting period before benefits begin so you won’t pay high out-of-pocket costs for care from assets.

Does Long-Term Care Insurance Fully Protect All Assets?

While long-term care insurance can significantly shield your assets, some financial planning experts suggest not necessarily relying on it to protect 100% of your assets in all scenarios:

  • Benefit limits on policies still leave you responsible for some costs
  • Very lengthy long-term care needs may exceed policy coverage
  • Premium costs may rise over time as you age
  • You may let policies lapse if premiums become unaffordable
  • Insurance companies can go out of business

These realities mean LTC insurance shouldn’t be the only form of asset protection in your financial plan. Some additional ways to preserve your nest egg include:

  • Contributing to HSAs and retirement accounts that can be used for care tax-free
  • Purchasing short-term care coverage to handle immediate post-retirement costs
  • Investing in annuities to cover essential costs like housing
  • Buying terminal illness riders on life insurance policies
  • Optimizing Social Security timing to maximize this asset

A diversified approach creates layers of protection for your hard-earned assets.

Is Long-Term Care Insurance Worth It?

Despite not providing absolute and indefinite asset protection, LTC insurance remains an excellent way to shield a significant portion of your assets if care is required. For many retirees, it can make the difference in preserving family wealth over the long run.

The key is working with an expert to select appropriate policy benefits, features, and premium amounts based on your financial situation. When purchased wisely, long-term care insurance is a worthwhile investment in maintaining your nest egg.

How does Long-Term Care Insurance Protect Your Assets?


What is the biggest drawback of long-term care insurance?

Long term care insurance is expensive and premiums can go up. That’s often a big, unpleasant surprise for many people.

What is excluded in a long-term care policy?

Many long-term care policies exclude coverage for the following: Mental and nervous disorders or diseases (except organic brain disorders) Alcoholism and drug addiction. Illnesses caused by an act of war.

What type of care is typically not covered in a long-term care policy?

Some of the more common exclusions in policies covering long term care services are: Mental illness, however, the policy may NOT exclude or limit benefits for Alzheimer’s Disease, senile dementia, or demonstrable organic brain disease. Intentionally self-inflicted injuries. Alcoholism and drug addiction.

What would most likely be covered by a long-term care policy?

Long-term care (LTC) insurance is coverage that provides nursing-home care, home-health care, and personal or adult daycare for individuals age 65 or older or with a chronic or disabling condition that needs constant supervision.

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