Long-Term Care Insurance for Aging Parents

The short answer is yes, you can buy long-term care insurance for your parents. However, it’s important to involve them in the process as their health history and signatures will be required.

The person making the premium payments would be listed as the payor, and the policy would be in the parent’s name. Typically, the person who is insured under the policy (in this case, your parents) is responsible for paying the premiums. If you plan to pay the premiums on behalf of your parents, you’ll need to discuss and agree on this arrangement.

Make this distinction when writing the policy for several reasons. First, it correctly depicts who is the insured and who is the payor. This can be crucial in the case of any legalities that may come up with the insured and the carrier.

If qualified for tax deductions, it will also serve as proper documentation for your tax return files. Please discuss with your trusted tax professional to determine whether your policy is tax-deductible. They can review Topic No. 502, Medical and Dental Expenses with you, as this is where the IRS notes the deductibility of premiums.

Long-term care should absolutely be considered for your parents, especially as they get into the 50-, 60- or 70-year-old range. The younger, the better, as premiums will only increase with time.

As in any financial plan, it’s wiser to plan ahead than wait. Waiting can cost you money or rush you into a bad decision. Waiting is also running the risk of your parents running into a health problem that will produce a denial of their long-term care application. In other words, they may become uninsurable.

In order to answer this question, you’ll have to understand your parents’ values and desires after and near death. While this may be a difficult conversation, it’s important to consider whether they would like a life insurance component to the policy. If so, a hybrid product would be the way to go. Otherwise, they should go with a traditional long-term care policy.

Traditional long-term care policies typically have a defined period where only long-term benefits will be paid. Hybrid, or linked benefit, policies will have death benefits available if not exhausted by policyholders while they were alive.

The type of long-term care insurance you ultimately choose should be determined by your own research and consultative conversations with trusted advisors. These advisors should ideally include an estate planning attorney, CPA, insurance broker or financial advisor.

Budgetary constraints are critical to the total benefit of your chosen policy. If money is the main driver in the decision, traditional long-term care products may be your best bet. While premiums are cheaper, you should know that premiums are not guaranteed. Although hybrid policies will be more expensive, premiums are fixed for life and easier to forecast when discussing what life will be like five to 10 years down the road.

The assets and monthly budget of the proposed insured will be highly influential in the decision-making process. While these products can be paid monthly, there are also quarterly, annual, 10-pay, 20-pay or even single premium payment plans.

There are two main alternatives to traditional or hybrid long-term care insurance: long-term care (LTC) riders and chronic illness riders.

Chronic illness riders are an acceleration of the death benefit and are typically used for non-terminal ailments. A long-term care rider is an additional option added to a life insurance policy that typically comes in the form of a percentage of the death benefit.

For example, let’s assume there is a policy with a death benefit of $100,000 with a 2% LTC rider. This would indicate the policy can pay $2,000 monthly until the death benefit is exhausted. That would last a little over four years. Be mindful that benefits may not begin until after an elimination period has passed, usually that of 90 days. These features change from carrier to carrier.

When talking to your insurance advisor, know that they will need a health license to include an LTC rider.