So Your Long Term Care Insurance Premiums Are Going Up. What Are Your Options?

Ughhhhhhhhhh. Do you hear that? That is the collective sigh of thousands of baby boomers after opening letters from their Long Term Care Insurance company to announce that the premiums they pay are going up. How much? Well it depends, but a 50% to 100% increase has been known to happen. In a financial planning practice like ours, with a heavy focus on retirement planning, we see this quite often for clients in their early to mid 60’s.

So what can you do? Generally carriers will let you decrease the premium by reducing your coverage. The specifics vary by insurer and by policy. Oftentimes the letters that are sent offer pre-packaged solutions to change the policy to keep the premium from going up. If you are faced with an increase, you first should ask the question, can I afford the increased premium? If the answer is yes, you probably should consider keeping the policy as it is and pay the increase. On the flip side, if the rate hike is too much for you to handle, here are some of the ways you might be able to reduce the coverage in exchange for a lower rate increase:

• Increase the elimination period: The elimination period is the number of days you pay for care before the policy starts covering the cost. It functions like a deductible, so the longer the elimination period, the more you pay out of pocket. The most common elimination period is 90 days. We find that most people are comfortable paying out of pocket for a longer period of time (say 180 days) if it means a lower premium. I like to say that going with a longer elimination period for Long Term Care is akin to going with a high deductible option for auto, home or health insurance. Be careful not to push the elimination period out too far. After all the average stay in a nursing home is typically somewhere between 2 and 3 years.

• Decrease the daily benefit amount: This is the maximum amount the policy will pay for care per day. The cost will greatly depend on your location and your type of care. Before you decrease your daily benefit amount, it is a good idea to see how much of the expected cost your policy would actually cover. Check out this website, created by Genworth, a large Long Term Care Insurance company, to help estimate the cost of care in your area: https://www.genworth.com/about-us/industry-expertise/cost-of-care.html. So how does your plan look? Do you expect to cover 80% or 90% of the cost, or are you projected to cover less? One discussion point that I typically mention with clients around the daily amount (especially for single or widowed clients) is to consider any pension or social security income that you expect to receive while receiving care. It is important to remember that you will continue to receive these benefits as long as you are alive. If you are willing to reallocate some of your retirement cash flow, you may be able to reduce the amount of daily benefit in your policy. That move could help control the premium cost if you are hit with an increase.

• Decrease the benefit period: This is the number of years the policy will pay for long-term care. The maximum benefit period is used to calculate the total benefit pool. Take for example you have a policy that has a $100 maximum daily amount benefit and a 3 year benefit period. The total pool of funds available in that policy is $100*(365*3) = $109,500. So it seems like you would have $109,500 available for your care, right? Wrong. You actually only have $100 per day for 3 years available for your care. The insurance company will cap the amount that is paid each day. Consider the earlier example, but suppose that the actual cost of care was $175 day and you were in the nursing home for 12 months after your elimination period prior to death. That policy would have only paid $100*365 = $36,500 total. Any cost above $100 would have to be paid by you and in that case you were unable to fully use the benefit pool. Because the cost of care continues to increase annually and the average stay is 2-3 years, we typically suggest that, if given the choice, it is better to decrease the benefit period before the daily benefit amount.

Three great questions this month.

We have had some great questions from clients this month. Below are three that we thought were worthy to share.

1) I have received a call from the IRS saying I owe them money. Should I call them back?

No, absolutely not, it is a scam. The IRS is aware of the scam, see this website: https://www.irs.gov/uac/newsroom/scam-phone-calls-continue-irs-identifies-five-easy-ways-to-spot-suspicious-calls. Actually this question is quite timely, as I myself received two scam IRS calls just last week on my personal cell phone. The voicemail that was left said there would be a lien placed on my home or my wages would be garnished, unless I called them back immediately. It can be unnerving to receive these calls. I have written about this scam a number of times in this blog, but I feel strongly this is something we need to continue to repeat. The IRS will never call you first demanding payment. The only way that the IRS will communicate with you if they have a question about your tax situation is via the U.S. Mail. While it is possible that you might receive a call if you have already been sent multiple letters requesting action, it would be unlikely. It is hard enough to get someone from the IRS to answer the phone when you call them directly, so a phone call follow up is hardly going to happen. Be aware also of email and fax scams that appear to be coming from the IRS. Some may look very official and even have official looking badge numbers. These types of scams are just another way for bad people to prey on the fear of unsuspecting people. Stay alert!

2) I have received information about changes to the Illinois Bright Start 529 Savings Plan. Please summarize the changes.

Yes, the Illinois 529 Bright Start plan did undergo some changes. On 7/17/17, the plan moved to a new investment manager, Union Bank & Trust. In reviewing the changes of the plan, we believe that this move is a positive for all account holders, many of which are our clients. The new platform eliminated the annual program expense fee of $10 per fund and the new investment options have lower all-in cost than the funds offered on the old platform. In addition to having lower costs, the new platform has expanded the investment options available for account holders to use. One particularly attractive improvement (in our opinion) on the new platform is there are now conservative, moderate and aggressive age based options available. These additional risk-based options for each age group allows for more flexibility as it relates to how the portfolio is invested. For more information on the changes, visit: https://www.brightstarttransition.com/account-owners/

3) I have some friends who have donated appreciated stock to support their church. Is gifting securities something I should consider for my charitable giving?

Perhaps, but gifting securities is likely not the best for everyone. If charitable giving is an important goal for you, gifting securities (stocks, bonds, mutual funds, etc.) directly to a charity could be attractive, but it is certainly more difficult than simply writing a check. So if it is more difficult, the logical question would be, why gift securities in the first place? The answer is if you gift securities that have appreciated in value, there could be considerable tax benefits to the donor. When gifting securities to a charity that have been held more than one year (considered long term), the donor will generally receive a charitable deduction equal to the value of the security (subject to some limitations) in the year the gift is made. Let’s take a look at an example of how this works. Say you have 100 shares of Monsanto stock (symbol = MON) that you purchased for $17.50 per share on 8/20/2001, for a total cost basis of $1,750. On 8/20/17 you gift all 100 shares to your local church, which immediately sells the stock at today’s price of $116.50 per share and puts the $11,650 in their general fund. This example helps illustrate that giving shares is really a win / win scenario. In this case, the church is happy because you were generous enough to give them $11,650. You, on the other hand, are also happy because you fulfilled your charitable gifting goal, while also avoiding having to pay capital gain tax on the sale of your stock. The church, as a non for profit, would not pay tax when the stock is sold. I like to describe this as giving away dollars that only cost you cents. If you do decide to go this route, you should first  check with the charity you want to receive the donation to confirm that they are able to accept securities. Not all charities will accept securities. Additionally, tax planning can have many moving parts, which is why we would suggest that you also consult with us or your tax preparer prior to making any gift.