There are several ways that insurance can cover the cost of long-term care. Your options depend largely on personal and financial circumstances and what you expect for your standard of care—both now and in retirement. Contracts can be available either individually, through an employer, or an association. Please note that different policies have different tax impacts.
Your LTC insurance should fit your personal situation. An individual may need a different level of coverage than a married couple because a single person has to consider the LTC needs of only one person. For couples, consider the effect on your spouse’s financial situation if you have an extended LTC situation. It’s also important to factor in family medical history and know the risks you face. Certain hereditary diseases in your family—like Alzheimer’s or diabetes—could make it more likely that you’ll have LTC needs in the future.
As you age, chances increase that either a medical event requiring LTC will occur or a health issue will develop that will keep insurers from approving your application. People typically buy LTC insurance in their 50s or when reviewing their retirement plan with their financial advisor. The risk that your health deteriorates should be considered along with the financial cost of waiting to purchase a policy—it will become more expensive to purchase similar LTC coverage as you age.
Most LTC policies cover similar costs, from nursing home stays to home health aides. You have to decide how much coverage you want, both in terms of the dollar amount of your benefits and how many years you want those benefits to last. Buying LTC insurance is like purchasing a pool of money that you can use for daily coverage (e.g., $200 per day) or monthly coverage (e.g., $6,000 a month).
If you’re going to spend the money on LTC insurance, make sure your benefits will be sufficient—and available to support you. Since LTC costs will likely continue their upward climb, consider adding inflation protection. Importantly, don’t buy more coverage than you can afford – avoid the likelihood of lapsing your contract. Instead, consider reducing the coverage amount to balance your financial situation with your LTC needs. Also, recognize that there are different ways to pay for your policy – possibly single-payment versus periodic premiums. Some policies may have the right to increase premiums after purchase; understand whether your premium payment amount is guaranteed or not.
Typically, you become eligible for your LTC benefits when you can no longer perform two “ADLs,” (Activities of Daily Living—eating, bathing, dressing) without help. Then, most policies have a waiting period (“elimination” or “deductible” period), during which you pay for your care separately from your policy until the waiting period is completed and you can start benefits.
When comparing contracts, keep the following important factors in mind:
Types of coverage
Understand the types of coverage is offered and if it can be customized. To compare policies, you must know what they include.
Pricing
How much are your premiums? Is there a refund of premiums provision? How much is the deductible? Know the costs and what you get for those costs.
Discounts
Research available discounts and ask for more discounts to help you save money wherever you can.
Exclusions
Know what the policy excludes. You don’t want a policy and that excludes coverage you need.
Company strength
Choose an insurance company with a strong track record and solid financial health. You want to make sure the company has the longevity to be around for the long-term, so it can pay your benefits when you need them. While NOT recommending any of these companies, the following companies were mentioned multiple times in ‘best company’ lists – New York Life, Mutual of Omaha, Northwestern Mutual, Lincoln Financial Group, Brighthouse Financial, Nationwide, Genworth, Thrivent, Banker’s Life, MassMutual, OneAmerica. This should give you a place to start.
Traditional (or Standalone) LTC insurance
You can choose the amount of coverage, how long it lasts (usually two to five years), how long you have to wait before receiving benefits (usually 30 to 90 days), possibly add inflation protection. Typically, you pay an annual premium for life, although your premium payment period could be shorter. However, many insurance companies no longer offer traditional policies and those that do may raise annual premiums after purchase. In fact, many individuals who purchased these contracts years ago are now seeing premium increases. Almost without exception, those premium increases should be accepted if they can be afforded.
Hybrid LTC Life Insurance
One type of hybrid insurance offers life insurance and LTC, where you would be able to draw down or accelerate the death benefit amount to pay for your care, subject to a monthly maximum amount. However, even if you used up the entire death benefit, the insurance company would still provide additional LTC coverage. Premiums are generally guaranteed (like life insurance), but they will tend to be higher than a standalone policy.
Hybrid LTC annuity
This provides LTC insurance at a multiple of the initial investment amount. The investment grows tax-free at a fixed rate of return, and, if used for LTC expenses, gains will be received income tax-free. If you qualify for LTC benefits, the LTC coverage would draw down both the account value and the LTC pool. Once your account value has been exhausted, the insurer would provide the remaining LTC pool benefits, which is effectively the insurance component of the policy. However, today’s interest-rate environment has made it challenging for insurers to provide annuities with LTC coverage. So, it’s important to note that these products have yet to gain any significant traction in the market, and, as a result, may not be available through your insurance company.
Life insurance with a long-term care rider
Some life insurance policies let you add on additional coverage for long-term care via a rider. A long-term care rider lets you use some of the life insurance policy’s death benefit to pay for long-term care needs while you’re still alive. There are some similarities to the hybrid LTC Life Insurance.
As always, if you have any questions about long term care insurance options, reach us at 833-888-0534 x2 or by email.
The views and information contained in this article and on this website are those of West Branch Capital LLC and are provided for general information. The information herein should not serve as the sole determining factor for making legal, tax, or investment decisions. All information is obtained from sources believed to be reliable, but West Branch Capital LLC does not guarantee its reliability. West Branch Capital LLC is not an attorney, accountant or actuary and does not provide legal, tax, accounting or actuarial advice.
