Why Long-Term Care Insurance?
Eldercare has replaced childcare as the number one work place concern.[1] Long-term care planning is an extremely important part of financial planning as it applies to retirement planning as well as estate preservation planning. Many individuals specialize in long-term care insurance, and stress the importance long-term care insurance. These “specialists” usually work for two to six insurance companies that sell long-term care policies.
The problem is that sometimes they don’t understand the big picture, and therefore, can miss the opportunity of giving a retiree the complete picture.
In my experience, I have found long-term care planning to be extremely important. I have seen extremely satisfied people who are collecting on these policies. However, I would guess that 75% are not happy and have considered ending their policy.
People, who don’t like this coverage, wonder why they are paying a premium for something they don’t need. Especially, when these individuals experience an annual rate increase of 8.6%, they want to know that they will use that coverage.[2]
I read an article, by “Elder Law Answers,” that had a number of ways to deal with this problem. All solutions suggested less insurance: “higher premiums mean that fewer consumers are buying long-term care coverage, and those who are buying are purchasing less protection.”[3] My experience suggests more coverage should be used in the future, not less.
Additionally, many insured have a different expectation when a benefit claim is made because the insurance company’s practice requires even more information from clients. This often discourages individuals from completing the claim because of the additional paperwork can cause frustration.
In a recent situation, an elderly couple was attempting to collect on a policy with a $182.00 daily benefit. It was payable over ten years with a 100-day waiting period. However, the waiting period was not what the couple expected.
The claim stated the healthy husband could no longer care for the disabled wife. The couple hired a home healthcare agency to provide assistance three days a week. The couple thought the waiting period was based on 100 claim days at three per week, which means they would have to wait eight months before payments began. Instead, the payments began three months and ten days from the original filing.
After reviewing their file, I was amazed to see the annual letters requesting premium increases. The wife’s rapid deterioration may result in her death before the waiting period ended and, certainly, before ten years of insurance coverage.
For instance, the average age for someone admitted to a nursing home is 83 while the average length of a claim is less than two years.
However, a better alternative exists in buying permanent life insurance with a long-term care rider.
This provides a guaranteed benefit in the form of life insurance, but the life insurance can also provide any necessary long-term care benefits, including the death benefit. This way if no long–term care benefits are necessary, then the life insurance benefit will be paid to the beneficiaries.
A typical premium for a long-term care policy for a female age 55 is about $1,400 per year, and on average, the costs are rising at over 6% per year.[5] That means in twelve years, the premium could double. By age 79, the figure could be $5,600 per year.[6] Since claims are not typically made until people reach their 80’s, the policy could cost in the neighborhood of $100,000 for a potential benefit of $164,000.
Depending on the individual’s needs, it can make more sense to purchase a life policy with a long-term care rider. A $200,000 policy premium would cost around $2,500 per year, but the premium will not change. The $200,000 would be added to the estate whether the individual needed long-term care coverage or not.
Long-term care riders are not found in the life policies of yesterday, but need additions to the life insurance system. This is why a full-planning review is extremely important to ensure completion and efficiency.
It is important for anyone, with a long-term care policy or is considering long-term care insurance, to speak with a financial professional and inform themselves. In some situations, long-term care might have a tremendous potential liability for an estate and should only be implemented acquired once the client understands everything.
[1] American Association for Long-Term Care Insurance
[2] Long-Term Care Insurance Premiums Rise Almost 9 Percent. Available from: https://attorney.elderlawanswers.com/newsletter/actions/view-article
[3] Long-Term Care Insurance Premiums Rise Almost 9 Percent. Available from: https://attorney.elderlawanswers.com/newsletter/actions/view-article
[4] American Association for Long-Term Care Insurance
[5] American Association for Long-Term Care Insurance
[6] American Association for Long-Term Care Insurance
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