New Options for Long Term Care Insurance

New Options for Long Term Care Insurance

Welcome to our quarterly newsletter. This edition discusses new, less expensive, options for those concerned with the prospect of needing Long Term Care for yourself or a family member.

What’s all the hubbub about Long Term Care Insurance?

The crux of the case for Long Term Care (LTC) is that most of us are living longer but may require special care if we are no longer able to perform all of the functions of normal daily living. Unfortunately, health or medicare insurance does not pay for the extended care needed if we are no longer fully functional. Most LTC insurance policies are triggered when at least 2 of the 6 daily living functions can’t be performed – (toileting, eating, bathing, continence, mobility, and dressing) or the insured suffers from severe cognitive impairment. When LTC is needed it often drains a family’s finances or stresses relationships because of the hardship imposed on family members who are the caregivers or paying for the care of a loved one.  The most common examples of extreme long term care burdens are dementia and stroke victims who may need care for several years. Costs for nursing homes and other specialized facilities in California average $68,000 per year. If you’re lucky enough to have saved so that $68,000 per year is not a burden, this would be a good time to stop reading this newsletter edition!

Not many people have LTC insurance for a few simple reasons:

When coverage is the least expensive and easy to obtain in our 30’s and 40’s most people can’t conceive of the future need for long term care because they are at the height of their mental and physical powers and money for insurance is spent on car, home, health, and life insurance, not long term care.

When people reach their 50’s, 60’s and 70’s and feel mortal enough to want LTC insurance, the cost is higher and their ability to qualify for it is more difficult.

There is also the fear that one might simply die quickly of a heart attack or accident and not use the LTC insurance they have paid for over the years.

Of course the number 1 reason people don’t buy any type of insurance is that they don’t feel they can afford the monthly cost or have other spending priorities.

How does traditional LTC insurance work?

A LTC policy is applied for as a separate policy to cover future LTC costs. If someone already has major health issues they will not be approved for LTC insurance. The cost can range anywhere from $100 per month to $500 per month depending on your age, health condition, and how robust the benefits are in your plan. LTC plans usually have a maximum fixed monthly amount paid for your care – such as $6,000 – along with a total pool of funds available for your care such as $250,000 or more. Plans offer a discount to married couples if they both obtain coverage. Most plans have a yearly inflation factor built in so that the monthly and total pool of funds grows annually, however, the premiums are subject to price increases over your lifetime.  As stated earlier, you are not eligible for these funds unless you are unable to perform at least 2 of the 6 daily living functions for a prolonged (minimum 90 days) period of time.

New Long Term Care Insurance options

Although I’m a big advocate for long term care insurance, I’m mindful that most people will not get a traditional policy for the reasons I’ve just stated. I’m thrilled, however, that the life insurance industry has come out with new life insurance products that have “chronic illness” or long term care features bundled into the policies, often at no extra cost! Although their features mimic those of traditional long term care insurance, it is called a “chronic illness rider” when bundled in a life insurance policy. I think these new plans are the best solution for those who can’t or won’t buy traditional LTC insurance. Of course I am a big believer that almost everyone should own some life insurance for their family to replace lost income or pay off the mortgage, or at least provide for the cost of burial or the probate process. So why not get more bang for your life insurance buck?

These new life insurance policies with chronic illness riders are a byproduct of another feature of life insurance policies- the “accelerated death benefit.” For many years life insurance companies have offered owners of life policies the ability to take some of the death benefit proceeds of a life policy early in the event of a terminal illness. The thinking is what if a person is dying but needs expensive care and drugs which the insured’s family is unable to afford? Why not allow some or all of the death benefit funds to be paid before death to alleviate the family’s financial burden? The money paid will eventually be paid anyway at death. Likewise these new chronic illness products allow the policy owner to receive funds to pay for the care of the insured in the event they can’t perform 2 of the 6 daily living functions. Some of these life policies have included other “living benefits” such as critical illness payments for events such as cancer, loss of sight, hearing, limbs etc. Clearly they are not as robust as a separate LTC policy because there is no growing pool of money tied to inflation. You are essentially trading some or all of your death benefit in a life policy for reimbursement of chronic illness costs. In my mind that option to trade a future death benefit to avoid financial ruin due to a family member’s illness is well worth it!

If you’re thinking “I already have life insurance but it doesn’t have those features, I guess I missed the boat on this,” I would strongly consider replacing your old life insurance with a chronic illness product and perhaps extend the length of the coverage.  Even if you have a medical condition there are still many options available to you with these new plans.

I won’t attempt to cover all of the details of these new plans that offer an alternative to traditional long term care insurance in this newsletter but there are 4 general categories:

1)      Term life insurance with chronic illness or living benefit features. These are short term solutions with very low cost even when compared to term life without the chronic illness features.

2)      Permanent life insurance such as “universal life” and “whole life” with a “no cost” chronic illness feature. These are more costly than term but much better peace of mind in that there is no time limit on the coverage.

3)      Permanent life insurance with an LTC rider. This is a hybrid of life and traditional LTC products. The attractiveness is that the screening for the LTC is more relaxed than regular LTC.

4)      Single pay permanent life insurance or annuity with a LTC rider. This concept is great for clients with enough capital to pay for this policy with one lump sum payment. It guarantees a death benefit and pool of funds available for LTC.  Most are also available with a return of premium feature allowing you to receive your money back if you were to surrender the policy.

As an independent life and health agent, I represent over 50 companies and many of them have these new plans that allow people to secure some Long Term Care (chronic illness) protection without the risk and cost of a separate LTC policy. I would be happy to review what you currently have and help find a new or replacement life, annuity policy, or LTC policy that fits your budget and allows you to sleep better at night.

I could scare you with horror stories about people who needed these types of protection but put it off until they contracted some horrible disease or died leaving their families in bad financial straits but I won’t. Don’t put off protecting your family’s financial future. Call or email me.