How Can I Choose A Long-Term Care Insurance Plan That’s Right For Me?
Once you have decided that you want to use some type of insurance to protect against the costs and other consequences that long-term care can reap on your family, you are halfway there. The next step is figuring out what to purchase. It used to be simpler, and it was quite complicated before. There are multiple types of products that cover this type of care, and depending on your needs, some that are more suitable than others. Fortunately, you can usually eliminate some choices somewhat easily, if you are working with an insurance agent who is well-versed in this specific area of insurance. It’s also important that the agent represents multiple insurance companies, and can offer you choice.
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The very first step, before you do anything, is find out if you have any health issues that limit your choices. Or learn if any health issues preclude you from being able to qualify at all. Rest easy though, because many health issues, such as early stage cancers, or cardiac histories that have been resolved over 2 years ago, won’t usually limit your choices too much. Diabetes with insulin use does limit your choice significantly, but if it’s still in good control, there are a couple options out there. Other conditions, such as Type 2 Diabetes, asthma, blood pressure, anxiety/depression, some arthritis issues, etc., are still insurable, but it’s important to be open with your agent about these. Otherwise it could end up being a waste of everyone’s time, including your own. Just be aware that the insurance companies will have access to your medical records, once you sign a medical release form. And you can’t buy the insurance without signing a release. RX records are available on-line, and the insurance company will see whatever conditions you leave out. And it’s a strike against you if not disclosed. From my own personal experience, when someone calls me out of the blue, before ever being introduced to the idea of long-term care insurance in the first place, I discover that they frequently have recently diagnosed medical issues that can cause a decline, approximately 75% of the time. It’s not uncommon for someone to get a diagnosis and immediately try to buy long-term care insurance. Purchasing this insurance usually works best when its proactively done as part of retirement planning, and not as a response to a medical diagnosis. Waiting that long almost always means trouble. I can’t stress this enough. Make sure to plan for long-term care before something happens.
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Long-term care insurance used to be primarily sold as a stand-alone traditional plan, with just long-term care coverage only. Now it is available as part of multiple different types of life insurance and annuities. And even when you decide what type of product to go with, there are certain sweet spots that these products have that could direct you to one company or another. For example, on the traditional plans, a woman purchasing alone, whether she is single or married, would find one particular company to be the best choice by far. If it’s a man in the same situation, another company is far better. And of it’s a couple purchasing together, who are somewhat close in age, yet a third company stands out. But before you get to that point, you need to decide what type of insurance to buy in the first place. This is where a long-term care expert can help you narrow things down.
Traditional long-term care insurance is still very popular, but hybrid combination life/long-term care plans are the fastest growing type of plan. Hybrid plans have very rich long-term care benefits, and a modest death benefit. And then there is a growing market for traditional life insurance that allows access to the death benefit, if long-term care is needed.
Plans with life insurance and long-term care insurance combined solve different types of problems. There are multiple types of designs within just this area. The main reason that these types of insurance are purchased are usually because of two main concerns. The most common reason is to be able to recoup the cost of the insurance with a death benefit, if care is never needed. Many people don’t want to pay premiums for many years, only to see the money wasted if they never need care. Of course, that is what insurance is all about in many cases. But long-term care insurance is expensive, so it is understandable why there may be concerns. The other reason may be that life insurance is needed too, along with some long-term care coverage at the same time. It’s extremely important to understand whether you are purchasing this because long-term care coverage is the key, versus a need for higher coverage for life insurance. If a high death benefit is not as important as having much richer long-term care benefits, you might be directed to a hybrid plan. If you want a large death benefit in a life insurance plan, but would like to access some, or all of the death benefits for long-term care costs, a whole life, or universal life plan, with a long-term care rider might be a good choice. There are pros and cons to both design types.
Hybrid plans can usually offer rich long-term care benefits with inflation growth over time, to keep up with growing costs. And if you change your mind about the purchase 5 years later, you can cancel the plan for a full refund of your premiums paid. Some plans may allow you to initially opt for a partial return if you ever cancel, and in return, you’d get even larger long-term care benefits. Hybrid plans also have a guaranteed death benefit that, at a minimum, returns your premiums, and usually a little more than that, if you don’t need care. Most plans are very similar, but there are a few variations. The biggest variation is whether the plan reimburses your expenses after showing receipts, or just pays you cash each month, whether you have receipts or not. These are called either reimbursement or indemnity plans.
Regular permanent life insurance will typically not offer inflation growth on the long-term care monthly benefits, the way that hybrids plans do, but the overall long-term care pool of money that’s available may grow with dividends on whole life plans. The life insurance coverage may be higher than a hybrid plan, which may be important to you. However, your potential out-of-pocket to cover long-term care costs could increase over time, because the the monthly limit stays the same into the future. Dividends applied to the policy only extend the pool of money longer, but not the monthly shortfall. Some plans may allow you to access the built-up dividends, to supplement the fixed monthly benefits. That allows you to partially make up for no inflation growth, but hybrid plans usually work better for long-term care benefit growth.
Universal life plans do the same thing as whole life, when it comes to using the death benefit for long-term care costs, and having permanent life insurance, and the premiums are lower than whole-life insurance. But that’s because there is little or no cash build-up, or dividends that can supplement the long-term care benefits. Therefore, not only is there no growth in the monthly long-term care benefit limit, but the overall pool of benefits won’t grow larger either. However, the premiums may be more affordable for what you are trying to accomplish.
For those with very deep pockets, you could purchase a life insurance plan that has a death benefit that is so large, the long-term care benefits to draw from are high enough to more than make up for lost inflation growth over time. But that is for the 1% of buyers out there. For example, one of the whole-life plans available would provide $18,000 per month in long-term care benefits, if you bought a $1 million death benefit on their whole life plan. The premiums are very high, but so are the benefits that will eventually be returned.
Life insurance with long-term care coverage is usually much more expensive than just plain old traditional long-term care coverage, but you are paying for the life insurance component too. There are a few traditional long-term care plans that do offer a pricey return of premium option if you never need care. And then there are annuities with long-term care benefits. They have a place, but are usually best suited if there are health issues that limit your options with other types of plans. Bottom line is consult an insurance agent who is very knowledgeable about this subject, or work with a long-term care specialist. A specialist can help you eliminate options quickly and get to the most suitable type of plan for you to consider.
For more information on this, or other topics concerning long-term care planning, contact Mark Baron, at Mark@BaronLTC.com.Leave a reply →