Long Term Care - The Good, The Bad and The Ugly
By Daniel Goodwin
When we council those who are in or near retirement, we always ask if they have Long Term Care insurance. Over many years, I have observed that only about 10% of the people have purchased LTC. Most have looked at it and the overwhelming majorities have chosen not to purchase Long Term Care. They all would love to have it, but most people do not in fact purchase the coverage primarily because of the cost. It’s understandable...Long Term Care insurance is a lot of money for something that you hope to God you will never need. It would be one thing if the insurance companies would lock in premium for your lifetime, but they won’t. This leaves people wondering if they are potentially going to pay for coverage for many years and then watch their premiums go up when they need the coverage the most. How would you feel if you paid LTC premiums for 20 years and then had to drop the coverage because you could no longer afford the cost of insurance? All of the money you had paid in has gone down the tube....
This firmly wedges many retirees between a rock and a hard place. On the flipside, with no insurance, a family risks evaporation of their nest egg if one or both spouses end up with a long and expensive illness. Unfortunately it happens; where the husband or wife has a long and costly illness and the money runs down or even out. The real hardship begins after death when the surviving spouse has to try and live on a meager, fixed income. So, what’s a retiree to do? According to the Administration on Aging 70% of people turning age 65 can expect to use some form of long term care during their lifetime.
Fortunately, there are hybrid insurance products that can provide an alternative solution. Let me give you a hypothetical example. Let’s say that I am talking to a couple, ages 62, who are in average health, and they have $100K in a CD at their local bank. I ask them what the purpose of that money is. They respond that the money is for an emergency such as long term care. If they don’t need it for long term care or other emergencies, then they would like for the money to be split evenly between their two daughters after they have both passed away. They are not using the $100K for their income needs now, and they feel they have sufficient assets to source their income needs in the years to come. However, the $100K CD also represents an additional cushion should the family need money for emergencies. Sounds like a fairly common scenario, correct?
Hypothetically, using the hybrid insurance solution with simplified underwriting and no medical test, the family might opt to purchase a policy with the $100K that could do one of three things: 1) Provide a guaranteed $177K of long term care benefits, if needed. 2) Return of premium. Meaning, at any time the $100K is refundable, should the family need the money back or no longer wish to own the insurance product. 3) Provide a tax free death benefit of $177K to the family’s two daughters should the family not need the money back, or have no need for long term care. This scenario sure beats the 1% interest at the bank, does it not? We call this “win win win”.
Since our future is unknowable and unpredictable, the best that someone can do is position themselves for multiple possibilities. It pays to know what all of your options are. These hybrid insurance products are available from several A and B rated carriers and provides an expanded menu of options/riders/features that many couples now enjoy. Keep in mind that there is minimal underwriting for this type of coverage and not all families are accepted. Before considering such a policy one should obtain a full proposal and seek council from a qualified insurance agent. Other companies offer similar products and it would be considered prudent to shop for your coverage before making any commitments.