Baby boomers postponing purchasing long term care insurance, despite what may be going on in their parents advanced age, have plenty of reasons to balk at conventional LTC plans.
One of the six primary reasons people do not buy long term care insurance. pdf
Sixth, the structure of policies themselves (benefits
denominated in dollars per day, inflation risk of purchasing insurance for an event that is probabilistically far away, increases in premiums for everyone when insurance companies face insolvency, denial of applications) reduces purchase rates.
Potential premium rate increases, big ones, are are the glaring weakness of stand alone LTC plan. The track record of existing policies has not been good with the double digit premium increases over the past few years.
To the rescue for viable avenue of coverage, Hybrid life/LTC insurance offers rate stability. Guaranteed Universal Life (GUL) products lock in a fixed premium guaranteed for life. The majority of these GUL products come with some sort of accelerated benefit targeted for long term care.
Hybrid Life plans provide a benefit one way or another. If you never need LTC coverage, your beneficiaries get the life insurance. Then if long-term care becomes a necessity, accelerate out a portion of the benefit. It may be only a small portion of the benefit ends up being needed; the rest can remain as a life insurance benefit.
Life hybrids are not perfect. Look for plans that specifically titled “long-term care” for more comprehensive benefit. Life policies with “chronic care” accelerated benefits are not as inclusive as their long term care benefit counterparts. With chronic care, the condition must likely be permanent. That benefit threshold would be a problem with for example a stroke, however debilitating a stroke might be, it may be considered to be recoverable. Many more conditions like a broken hip are not going to qualify for a chronic care benefit where they would if the plan’s benefits are full fledged long-term care.
There are other limitations that pull from the edges of rock solid LTC coverage. For example, the structure of benefit is generally limited by a monthly amount or daily maximum tied to the HIPAA per diem limit currently allowed by IRS rules, but just review carefully what’s optimal given the choices for plans and your situation.
Look for plans that have indemnity benefit, paid in cash, rather than reimbursement: better to receive a check than submit bills to be repaid.
How much coverage is enough?
Fifth, a sizable portion of the population has neither sufficient wealth to protect nor income to pay long-term care insurance premiums.
Most people have a desire to leave something to their children, or if nothing else, not be a financial burden on their children. It’s hard to judge how much money would be needed to cover LTC. It really runs the gambit but coverage for $100,000 provides at least something. One life plan with chronic care starts at a $25,000 face amount.
With the exception of certain plans like Lincoln National’s MoneyGuard, hybrid life benefits do not provide inflation protection. LTC benefits are no higher than the death benefit. Chronic Care plans have no upfront charge, but reduce the benefit with a discount charge. How big a policy is enough if determined by the face amount: $100k, $250k, $1m? The solution to choose a plan that builds cash value with an increasing face amount death benefit, either an Indexed Universal Life or a Current Assumption UL, to access cash value through policy loans or partial surrenders.
Hybrid life premiums with accelerated living benefits for LTC are affordable, not for or some worst case scenario like Alzheimer’s, but still something is better for nothing. There are hybrid life plans with $100,000 to $250,000 face amounts for people in their 50’s or 60’s with reasonable premiums. Chronic Care riders have no up front charge for the benefit. Check them out by reviewing the sample quotes by age on this website.
Licensed Agent: Sean Drummey
