Rethinking the Approach to Long-Term Care Insurance

Historically, there are many who do not purchase Long-Term Care (LTC) Insurance despite the increasing likelihood that prolonged financially debilitating needs for care may arise at some point in our future. Older Americans and nursing facilities being hit so hard by the COVID-19 pandemic might encourage people to want access to home care should they have a long term illness, but it only adds to potential need for extended coverage.

Traditional LTC insurance is often viewed as expensive coverage because if you don’t use it, you lose the money paid in as premiums. Some of those policies have seen double-digit premium increases. If you have one of these policies, a premium increase is a challenge, but actually it represents how underpriced 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 and provide yourself with 3.5-5x the amount paid in to use towards the cost of a long-term illness.

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 new 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 proceeds originally 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 the policyholder dies without using it and their beneficiaries receive a tax-free life insurance payout.

Another advantage of these newer products is in flexibility of premium to be paid. Policyholders can either pay a lump-sum premium up front or carry a level payment schedule for a set term. There is also an added advantage of being able to change your mind and take a portion of your money back 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 Medicare and 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 provides care consultants to help you to consider 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, don’t hesitate to reach out with your specific concerns.