Do Your Parents Need Long Term Care Insurance?

A few months ago I wrote about how finding out your parents financial situation can be stressful and I thought I would touch on that again now that my brother and I have been talking a little more about it. My mom is living off the savings that her and my dad had amassed before he died, his retirement funds and she will begin to get his SS money in a few years. But she pays for her medical care herself, and while she is pretty healthy right now, she does have some issues that could cause her some grief later in life. And in turn, this could cause my brother and I to spend A LOT of money on her care if she needs it after she runs out of her own money. What else would we do, put her out on the street to fend for herself? I don’t think so. So we have begun talking about long term care insurance for her, and whether he and I should just pay for it ourselves because she refuses to look into it or get it for herself. It is a painful conversation to have, but one that needs to be had. We have tried to bring it up several times, but each time she says she cannot afford it.

However, we cannot afford to pay for her care ourselves if and when she needs it; after all, we have and will have our own families to take care of. So long term care kind of looks like a necessity. Long-term care insurance covers care generally not covered by health insurance, Medicare, or Medicaid. The expenses laid out for this kind of care are sometimes income tax deductible, so that is good, and the amount deductible depends on the age of the person getting the benefits. There are generally two types of long term care available:

The Non-Tax Qualified (NTQ)was formerly called Traditional Long Term Care insurance. This type has been sold for over 30 years. It often includes a “trigger” called a “medical necessity” trigger. This means that the patient’s own doctor, or that doctor in conjunction with someone from the insurance company, can state that the patient needs care for any medical reason and the policy will pay. Benefits are taxable.

The Tax Qualified (TQ) long term care insurance policies do not have a Medical Necessity trigger. In addition, they require that a person be expected to require care for at least 90 days, and be unable to perform 2 or more activities of daily living (eating, dressing, bathing, transferring, continence) without substantial assistance (hands on or standby) and that a doctor provides a Plan of Care; or that for at least 90 days, the person needs substantial assistance due to a severe cognitive impairment and a doctor provides a Plan of Care. Benefits are non-taxable. From Guide To Long Term Care

How I understand this is that she would qualify for Non-Tax Qualified care…so I have to do a little digging on the subject. I am thinking it would be a good investment for my brother and I to make to insure that we are protected later in life and are not wiped out by her medical needs, should they arise. Anyone out there have any experience with this? If so, I would love to hear what you have done or are preparing to do, or if your parents went ahead and bought it for themselves.

For a little more info on the subject, a good place to start is Consumer Law. It is all so confusing and scary, but I think it needs to be done.

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Comments (5)

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  1. […] Two Dollars – Do Your Parents Need Long Term Care Insurance?: This is a good post that hits close to home for me. My grandmother suffers from alzheimer’s […]

  2. The government should have been more proactive this past 10-15 years educating or helping to educate the American public just exactly what LTC insurance is and why they need to consider purchasing it.

  3. David,

    First of all, I commend you on your foresight and courage and love for your mom. It’s not easy to discuss matters like this with our aging parents. And, it’s a very loving thing to say, “Mom, I want to make sure you get the best possible care, so let’s plan ahead, just in case it happens.”

    To clarify a few points:

    1) Benefits from a Non-tax qualified long term care policy may or may not be taxable. No one knows for sure. To date, I have not seen any proof of anyone being taxed for receiving benefits under a non-tax-qualiied policy. The part of tax code that discusses “tax qualified” policies is silent in regards to the taxability of benefits received under a non-tax-qualified policy. Other parts of the tax code would seem to imply that the benefits received under a non-tax-qualified policy would be tax-free, if the premiums were paid with after-tax dollars (which they most likely would be.)

    2) The problem with a “medical necessity” trigger, however, is its ambiguity. When is care “medically necessary” and when is it not? The majority of long term care policies sold over the past 20 years use the “Activities of Daily Living” (ADL’s) as the trigger for qualifying for benefits. This trigger is more “objective”. Either someone needs assistance with 2 of the 6 ADL’s or they do not.

    3) There are very few companies that still offer “non tax qualified” policies. Additionally, most of the “non tax qualified” policies that are available today do NOT have a ‘medical necessity’ trigger. They use an ADL trigger, just like the tax-qualified policies.

    4) Lastly, you stated, “How I understand this is that she would qualify for Non-Tax Qualified care”┬Žso I have to do a little digging on the subject.” I’m not sure what you mean by this. If you mean that your mother currently needs some type of assistance with ADL’s or assistance with IADL’s (Instrumental Activities of Daily Living like managing medications, housekeeping, meal preparation, etc…) then she is probably not healthy enough to qualify for any long term care insurance policy.

    I hope this is helpful.

    Scott A. Olson, CLTC

  4. david says:

    Thanks Scott will look into it!

  5. […] wrote a while back about long-term care insurance for our parents, but I just came across an article in Parade Magazine asking the same question I did back then, […]