 A recent on-line column at Advisors Perspective attempts to provide an objective framework for conducting a long term care insurance analysis in a financial planning practice. It fails on several levels.
The article, “Evaluating Long-Term Care Insurance”, published February 24, 2020, and written by Allan Roth is hardly a comprehensive view of the subject, and it needs to be viewed with limited applicability. I find it to be only partially researched, inconsistently analyzed, and overly opinionated. Too many financial advisors inappropriately seek to value insurance products using an investment analysis model. While there are certainly cash-flow and cost of money considerations, as noted above insurance is purchased with an expectation of “losing” a little in exchange for potentially protecting a lot. And there are “soft”, subjective considerations that are also routinely ignored, but that often create the biggest value in having coverage when the risk event occurs.
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The IRS has just released its annual inflation adjustments for tax year 2020. This includes the amount of LTC insurance premiums which are considered deductible health insurance premiums (the "Eligible Premium") and the minimum tax-free benefit amount for "cash benefit" indemnity plan payments - what the IRS calls "per diem" plans. FOR CLAIMS IN 2020 with a "cash benefit" or indemnity (per diem) policy the minimum tax-free benefit increases to $380 per day ($11,558/month). (This is a $10/day increase from 2019 which was $370/day.)
FOR PREMIUMS PAID IN 2020 the amount of tax-qualified premiums paid based on your age at the end of the tax year (on 12/31/2020) are considered a deductible medical expense up to the following age-based, "Eligible Premium" limits:
NOTE that most taxpayers will not be able to realize any deduction as you must first be able to itemize deductions on Schedule A, have total un-reimbursed medical expenses including the LTC Eligible Premium that exceed 10% of your Adjusted Gross Income (AGI), and only the amount above the 10% threshold is deductible. HOWEVER, if you have funds in a Health Savings Account (HSA) - or an employer-funded Health Reimbursement Account (HRA) - you CAN use those tax-free dollars to pay tax-qualified LTC insurance premiums up to the age-based, Eligible Premium amount shown above. BUSINESS OWNERS (and spouses) get to take the age-based, Eligible Premium deduction "above-the-line" on page one of Form 1040 as part of the "Self Employed Health Insurance Deduction" (Line 29). This applies to owners of business incorporated or taxes as: Sole Proprietorships, Partnerships, or S-Corporations. (Shareholder/Employees of a "regular" C-Corporation can have the entire premium deducted - without limit - if paid as an employee benefit by the corporation.) CLICK HERE TO LEARN MORE ABOUT BUSINESS DEDUCTIONS FOR LTCI. * The tax information presented here is for general information only and should not be used nor relied upon as specific tax advice. Taxpayers should consult with their CPA or qualified tax professional for advice regarding their own tax situation and the tax status of LTC premiums and benefits.
For a quick look at average/sample rates for LTC insurance see our new information page by clicking the button below!
The state of Washington has passed the first of its kind government-run LTC insurance program for working residents of the state. The plan will provide $100 per day of benefits which will increase with inflation for a maximum of 365 days (1-year). Each day of benefits is considered a "unit" of coverage and units can be combined to pay for care services above $100/day, but that would also shorten the total benefit period. The benefit can be used to pay family members to provide care after they have completed a minimum amount of mandatory training. Every employee in the state will have a payroll tax withholding to pay for the plan. The tax is 0.58%, or $0.58 for every $100 in payroll income. A person earning $4,000 per month would pay $23.20 per month. The plan does not cover people already retired or who will retire in the next 6 to 10 years. It also is not portable if an employee leaves the state of Washington.
Payroll deductions will not begin for 3 years, and no benefits will be paid for at least 3 years after that as the plan requires that employees pay in for a minimum of 3 of the previous 6 years to be eligible. To be fully "vested" in the plan an employee must pay in for at least 10 years. "Self employed" people will not be automatically covered, but can opt-into the plan at the same payroll tax rate. Employees who have private LTC insurance can opt-out of the tax and coverage. This week the news media lost its collective mind over a silly, old social media trope about a guy who says he won't live out his days in a nursing home, rather he'll simply stay at a Holiday Inn. It's cheaper, and the service is better, so it says. But it's a false narrative. I wrote an extensive blog on this in 2016. The e-mail I copied into that post from three years ago and the "new" Facebook post getting all the current attention are identical, word-for-word. It's certainly not original, it's specious and misleading, and the numbers are (still) way out of date.
A TV station in Houston, KHOU, even found an internet post from 2004 with nearly the same wording as this old-is-new-again misleading social media joke. You can't compare "independent retirement living" with CARE in a nursing home - or an assisted living facility. Hotel staff - nor cruise ship staff - will bathe and dress you, help you to and from the toilet, nor will they make sure your dementia doesn't lead you out the front door into traffic - or over the rail into the ocean - in the middle of the night. Once you need CARE, you'll be on the curb - or the dock. CLICK HERE to read my 2016 blog post for more details on why this is a ridiculous idea.
Comfort LTC owner, Bill Comfort, is featured on a new website for insurance agents and financial advisors seeking to learn more about LTC insurance and other care-planning options.
Licensed agents and advisors can access the new NAIFA Center for Limited and Extended Care Funding at: https://naifa.lifehappenspro.org
Watch Bill's video promoting the CLTC designation training program here:
Medicare Open Enrollment is here. October 15th to December 7th.
Click "Read More" below to check out this great infographic, and let us know if we can help you with any of your Medicare questions! Good advice from Kaiser Health News: Hold off on genetic testing until AFTER you buy LTC insurance (or life or disability). You must disclose the existence of the testing and any known results on an application and results can be used to deny or limit coverage.
Looking forward, LTC insurance is more secure and reliable than ever.CLICK HERE to read my new article on why LTC insurance remains a valuable insurance product with a future that should be much more stable than in the past.
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