At the time of application, you select the amount of coverage (quoted as an amount of coverage per day) and length of benefit period (i.e. 2 years).
Drawbacks of Long-Term Care Insurance
Just like other health-based insurances, you will go through medical underwriting to see if you qualify for coverage. If you’ve had health issues, you may not be able to obtain the protection you need.
In addition, your premiums are not set in stone. Insurance companies can raise the premiums on their policies. In fact, many insurers have done just that, with premium increases in the double and triple digits. And, like other insurances, LTC insurance is a “use it or lose it” policy. If you don’t file a claim, you won’t recoup your premiums.
Alternatives to Long-Term Care Insurance
“Asset-based” or “hybrid” long-term products have increased in popularity. These combine LTC insurance with either life insurance or an annuity. These solutions seek to provide the same protection against catastrophic financial loss while addressing some of the shortcomings of traditional LTC insurance.
Under this arrangement, a whole life or universal life insurance policy is combined with an LTC “rider” (an added benefit).
Because it’s life insurance, there’s the added bonus of a death benefit for your beneficiaries when you pass away. This gets rid of the “use it or lose it” aspect of traditional LTC insurance. Filing claims for LTC reduces the death benefit, and you usually have an additional pool of money to pull from.
Premiums can be paid over the remainder of your life, in a set number of years or as a one-time, up-front payment. Some policies with a single premium even allow you to get your money back in the future if you don’t want the policy anymore! With these policies, you know what your premium will be—no surprises or increases from the insurance company. However, there is still medical underwriting involved, which means you must be in decent health to qualify.
The second alternative to traditional LTC insurance combines LTC with a fixed annuity.
With an annuity, you invest a one-time amount with the insurance company in exchange for a fixed rate of return. The insurer gives you an increased amount to use for LTC expenses.
For example, someone depositing $100,000 into a hybrid LTC annuity might get $200,000 or $300,000 as their “pool of money” to use for expenses. If you don’t ever file a claim, your beneficiaries receive the value of your annuity when you pass away.
In addition to eliminating the “use it or lose it” provision of LTC insurance, an annuity also requires only simplified underwriting with no medical exam. For people with health issues, they might find they can qualify for a hybrid LTC annuity.
Finally, since you are depositing your premium as a one-time lump sum, you don’t have to worry about rate hikes.
What option is best?
Any of these options—traditional LTC insurance, a hybrid life insurance/LTC policy, or an annuity solution, can provide tremendous benefits to your financial picture and your family’s peace of mind.
Because of the unknown and potentially catastrophic costs of future care, “self-insuring” is too risky for most. In addition, Medicare does not cover LTC expenses.
If you’re in your 50s, this might be the most advantageous time to think about your LTC insurance options. For pre-retirees and retirees, failing to plan for future LTC can cost you and your family.
We would love to talk with you about what option works best for your situation. Schedule a time to talk with one of our advisors.