The most prevalent type of care that most of us will face for ourselves and our families will most likely be related to various forms of in-home care. This has become the most preferred and cost efficient means of care, ranging from basic companionship to highly skilled care. As we benefit from the technological age, we may also discover that longevity is not free. With longevity, comes the need for care and a solution for how to pay and plan for care.
The first topic on the radar that usually presents itself when addressing the need to fund care is long term care insurance. This is a type of insurance that will pay for portions of required care as you age and the need arises. However, this type of insurance is rife with complexity and financial risk. One insurance professional summed it up for me in these words “use it or lose it”. This means that after you pay the premiums, if you don’t need it or die early there is no residual value. The money went out the window. Further, there has been some very bad PR recently with government employees experiencing an 83% year over year increase in their policy premiums. Industry professionals have commented that this is a one-time event and that it should not ruin the opportunity such policies may provide. This is the hard love and handshake that you can be dealt with a basic long term care policy.
Having said that, there is another type of policy called a hybrid policy. This is a policy that requires an upfront investment, has the option of indexing premiums to inflation, and does not fall into the use it or lose it category. The hybrid policy will provide a life insurance benefit so there is residual from your payments and investment. The hybrid indexed to inflation is said to also protect policy holders from outrageous premium increases that feel like ultimatums threatening your coverage.
I personally don’t favor either type of long term care insurance as a standalone defense. For me, it comes down to the “unknown versus the known” quantity. Long term care insurance is unknown and fraught with risk for my planning purposes in my fifties. However, if I take a step back and get a little innovative I find that I can eliminate much of the risk and buy myself a much more stable platform of insurance options if I combine the unknown with a known entity. Yes, this leads me to my favorite subject, the HECM Reverse Mortgage.
The HECM is a known quantity. You know exactly what your benefits are and how much they will grow from the day you close on your loan. It doesn’t matter if your property value plummets or if your credit sours over time or even if you live forever. It is simply a known quantity with growth and many attractive planning options for eligible homeowners with sufficient home equity. Of course, the funding options are different based on age and the amount of home equity but the end result is enticing. If you combine either a basic or a hybrid long term care insurance policy with a HECM Reverse Mortgage and integrate this with your income and investments you may find that you have created a winning strategy that levels out the risk and provides a solid platform to address the need to pay and plan for care. To be more specific, the Reverse Mortgage can provide funds to cover the portion of costs the long term care policies do not cover and it will also provide a backstop that will allow for more flexibility when it comes to decision making and paying for care.
Explore my other blogs on home care and funding options here.