What happens if you don’t use your long-term care insurance?

We came across an interesting Q&A on the Miami Herald Action Line related to unused long-term care insurance. The reader was inquiring about her eligibility for a cash reimbursement or benefit on a plan that she had been paying on since 2003 but was never used. It turns out that her insurance policy doesn’t offer any type of reimbursement for a policy that goes unused.

Long-term care insurance policies are widely touted as the best way to plan ahead for paying for long-term care in lieu of being forced to give up your home to cover the costs, but if you end up not needing the policy, you’re basically out all the money you’ve put in.

The Wall Street Journal weighs in on the issue, noting a few alternatives to traditional all-or-nothing long-term care insurance policies, and a new law that will make those options even more attractive. As consumers become more aware of the shortcomings of most standard long-term care insurance policies, hybrid policies are likely to become more common.

Alternatives to long-term care insurance

There are options currently available for consumers who want the added financial protection of a long-term care insurance policy, but aren’t sure they’ll ever need it. Among them, a deferred fixed annuity or a life insurance policy can be packaged with a long-term care benefit.

According to the Wall Street Journal, until now, money from these investments used for long-term care needs was taxable. Under the Pension Protection Act of 2006, which went into effect on January 1st, these funds would not be subject to tax. With a life insurance policy, the death benefit would be reduced according to how much money was spent on long-term care. Other programs, like the CLASS Act introduced recently by the government, aim to help ease the pain of steep long-term care costs while offering flexibility (payments can be used to compensate family caregivers).

Individuals and families should consider their personal financial situation, age, health, and other factors before deciding on a long-term care plan of any type, and meet with a financial planner or elder care attorney if possible.

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