What Happens When Clients Run Out of LTCI Benefits?

Long-term care insurance (LTCI) provides crucial financial protection for extended care needs, but most policies have a benefit cap, whether it’s a maximum payout amount or benefit duration. When LTCI benefits run out, clients may face a difficult financial situation. As a financial advisor, you are uniquely positioned to help them plan for the next phase of care.

Assess the Client’s Remaining Resources

• Do they have enough personal savings and investments to self-fund their care?
• Can their pensions, Social Security, and retirement accounts cover ongoing expenses?
• Do they have enough home equity to benefit from a reverse mortgage or selling their home?
• Are their adult children or other loved ones willing and able to help with care costs?

Advisor Tip: Have this conversation well before LTCI benefits run out to avoid last-minute financial strain.

Explore Medicaid Planning Strategies

If the client’s personal funds won’t cover ongoing care, Medicaid may be the next step. However, in order to qualify, they need to meet specific income and asset requirements. 

To obtain Medicaid eligibility, clients may need to spend down their excess assets to be within Medicaid’s limits. Fortunately, they can use a Medicaid Compliant Annuity to preserve what they have left by converting these assets into an income stream. For married couples, the health spouse can keep a separate portion of assets known as the Community Spouse Resource Allowance, which varies by state but is often upwards of $100,000.

Clients may also want to consider state partnership protection (available in most states) as a part of their LTCI policy. In the event they exhaust all their LTCI benefits and pursue Medicaid eligibility, the amount of policy benefits paid on their behalf will be exempt from Medicaid in addition to their normal resource allowance, allowing them to preserve additional assets.

Advisor Tip: Work with an elder law attorney to ensure proper Medicaid planning and to avoid violating the 5-year lookback rule for divestments.

Consider Alternative Care Options

If nursing home care is no longer financially feasible for the client, explore more affordable alternatives, such as:

• Home health care, which can be cheaper than full-time facility care
• Adult day care programs, which provide daytime supervision while allowing family involvement
• Medicaid waiver programs for assisted living, available in some states

Guide Clients on Estate and Legacy Planning

As assets diminish, financial advisors should help clients:

• Update estate plans to reflect their changing financial situation.
• Review their financial power of attorney to ensure a trusted individual can manage their affairs.
• Discuss inheritance expectations with family members.

Planning Ahead Is Key

Clients may underestimate how long they will need long-term care. As their financial advisor, you can help them:

• Prepare for what happens when LTCI benefits run out.
• Explore Medicaid and alternative funding sources.
• Protect assets while ensuring they receive quality care.

Want to help your clients plan ahead? Make sure you’re discussing extended care strategies with them as early as possible.