Rethinking the Approach to Long Term Care Insurance

By Aviva Sapers 

Historically, many people do not purchase Long Term Care (LTC) Insurance despite the increasing likelihood that prolonged, financially debilitating health support may arise at some point in our future. The need for extended coverage has never been so stark as it is today with so many older Americans and nursing facilities being hit so hard by the COVID-19 pandemic.

Traditional LTC insurance is often viewed as expensive coverage where, if you don’t use it, you lose the money paid in premiums. Some of those policies have also experienced double-digit premium increases. If you have one of these policies, a premium increase is certainly a challenge, but it actually represents how under priced your coverage really has been. We have yet to find a scenario where it is cheaper to buy a new policy today than to accept the increase forced upon policyholders by the insurance carriers for LTC. Regardless, a newer generation of hybrid long term care products have come to the market where if you don’t use the benefit, your family gets back most or all of what you paid in premiums.

Hybrid products are more cash intensive and are a good alternative for people sitting on a bunch of cash earning nothing at the bank. You could move that cash into a hybrid policy and provide yourself with 3.5-5x the amount paid in to use towards the cost of a long term illness. If you never get sick and just pass on, most or all of what was paid in comes back to your family or beneficiary.

There is another type of use-it-or-keep-it long term care option, which is to add a long term care rider on a life insurance policy. This rider will provide a monthly benefit to the insured if they become unable to do 2 out of 6 activities of daily living or are cognitively impaired. If the insured never gets sick and just passes on, then the beneficiaries will receive the death benefit as purchased.

Both of these newer options, hybrid or LTC rider on a life policy, guarantee that either you or your beneficiaries will receive some level of benefit—whether it’s needed for LTC or if you die without using the LTC benefit, it pays your beneficiaries a tax-free life insurance payout.

Another advantage of the newer products is that you can either pay a lump-sum premium up front or pay a level payment for a set term. There is also an added advantage of being able to change your mind and cash in the policy and get back much of what you have paid in if certain conditions are met. At the very least, the premiums are either guaranteed or much less likely to increase over the specified premium paying period.

With Medicaid – by far, the largest payer of long term care costs – facing funding cuts, our ever-growing population should not expect to rely solely on this program for LTC needs. Having some type of long term care coverage of your own can help you get into a facility of choice and often provide care consultants that help you to address the best ways to get the help you need when it is needed.

With a little innovation and greater access to affordable and flexible products, insurance carriers, regulators, and policyholders can work together to rethink how we approach aging in this country. If you’re interested in discussing available products and solutions, please reach out with your specific needs. You can contact us using the button below.