Changes To LTC Insurance Over The Last 10 Years
In prior articles, we briefly examined the basics of long term care insurance, some statistics, the interface of government and long-term care and various components which affect the cost of plans. Long term care insurance has changed significantly over the past 30 years and particularly over the last 10 years. Some of these changes have been positive, but others have not.
Underwriting
It is more difficult today to qualify for long term care coverage than years ago. Many companies have made underwriting changes which include application questions about family medical history. In addition, many companies are now requiring full paramedical exams instead of just medical records. If you already have a serious health problem, it may be impossible to secure coverage.
Rate Increases
In the last 7-8 years in particular, almost every long term care policy holder has seen increases in long term care premiums. This is due to a number of factors including:
- Low interest rates
- Fewer people cancelling their long term care policies than the actuaries projected
- People living longer and requiring more care than originally anticipated
Historically, the companies that have enacted rate increases have also given policy holders options to keep their cost the same by reducing some other feature in their policy. Fortunately, in the last few years, the rate increases have stabilized significantly. In addition, the introduction of asset-based long term care products (combination universal life/long term care) provides the excellent advantage of guaranteed premiums.
Combination Policies / Living Benefit’s Policies
We have mentioned hybrid or combination life insurance/long term care and annuity/long term care plans before. This is an excellent option for some considering long term care coverage. It is one of the more favorable changes and advances that have occurred in the long-term care arena.
Life Insurance / Accelerated Death Benefits or Living Benefits
Many life insurers now allow insureds to tap into death benefits. Tapping into death benefits occur when there is need due terminal or catastrophic illness. These are then called “accelerated death benefits”. Premiums are often 5% to 15% higher for this option. And, you will receive 25% to 100% of the death benefit in advance.
Life insurance policies with the strongest long-term care benefits are often single premium life insurance plans: other payment options may be available.
Sometimes, it is more cost effective to have a separate life insurance policy, and a second more comprehensive long-term care policy. However, “living benefits” policies can be most useful for individuals who may otherwise be unable to qualify for long term care insurance due to poor health since underwriting may be eased.
The single premium annuities with long term care riders can pay up to three times the annuity value for long term care benefits. However, a large initial investment is generally necessary to generate adequate long term care benefits.
Annuities and life insurance policies with long term care riders are also becoming more popular due to a provision in the law, which allows individuals to pay long term care insurance premiums with proceeds / cash value from existing (or new) annuities or life insurance policies or from retirement plans without paying tax on the gain if this is done through a section 1035 exchange. Again, this is something to discuss with your accountant.
The advantages of the combination life/long term care plans are:
- No rate increases
- Lifetime (unlimited) benefit may be available
- Full or partial return (refund) of premium
- Death benefit (reduced by the amount of long term care benefit used)
- Cash surrender value
The disadvantages include:
- Can be costly
- May not be as flexible in design as traditional long term care insurance
- Not all have inflation protection
As we move into the future, insurance companies will surely develop new strategies to address the problem which is certainly not going away – the ever escalating cost of long term care.
So, as consumers, caregivers, family members, patients and advisors, how do we determine if long term care insurance makes sense to purchase? It is certainly not a panacea and is unquestionably not for everyone. For those who are uninsurable, have no assets to protect, or are not interested in leaving an estate, or who cannot afford the premiums, long term care insurance may not be the answer. However, if any of these comments reflect your thinking, you may want to consider long term care insurance.
- I want to make sure if something happens to me, my wife (husband) won’t have to change her (his) lifestyle/ financial status.
- I worked my whole life to build a nest egg. I don’t want it used up in a paying for long term care.
- I want to maintain my financial independence.
- I want to leave something to my church, synagogue, favorite charity, etc.
- I want to make sure I can get into a quality nursing home or receive quality home care should I ever need it.
- I went through the financial difficulties of my mother’s (father’s) illness and I don’t want to place that same burden on my family should I ever need care.
- I have children getting ready for college. If something happens to my mother’s (father’s) health, I would be the one who would have to bear their long term care costs and I’m not sure I can afford both college and their care.
- I really don’t know what I would do if I would have to face an additional monthly expense of almost $10,000 (the cost of care in NJ).
Hopefully, these articles have provided you with some framework to continue exploring and discussing long term care insurance and determining whether or not it is something that would benefit you and your loved ones.
With thanks to contributor Carol Einhorn of Trisure Group.
Carol G. Einhorn is a nationally known long-term care insurance specialist. She is principal, along with her husband Jules, of TriSure Group, an insurance firm that focuses on life insurance, disability and long-term care.
Carol lectures frequently to groups of seniors and health administrators concerned with the issues of long term care, Medicare and Medicaid and has authored a number of articles on these topics. Also, she presents seminars to accounting and law firms and has been a guest on a variety of radio and television programs. She has served as a consultant to many major insurance companies and has testified as an expert witness before the Pennsylvania State House Insurance Committee.
She says: “My best attribute is that I am a good and compassionate listener and I apply my 25+ years’ experience in the long-term care industry to help solve problems for clients.”
Carol can be reached at:
P.O. Box 220
Langhorne, PA 19047
267.852.0222
Disclaimer: The material in this blog is for educational purposes only. It is not intended to replace, nor does it replace, consulting with a physician, lawyer, accountant, financial planner or other qualified professional.
