Long-Term Care Insurance: That Wasn’t Supposed to Happen!

Q. When my mom was in her 50’s, long-term care insurance seemed like a great idea. She bought a policy while she and my father were still relatively healthy, paid their monthly premiums on time every month, and in return they thought they’d be able to afford a nursing home, assisted-living facility, or personal home health aide if and when the need arose.

The time eventually did come, as it does for most of us, but things didn’t happen as planned. The insurance that was supposed to help them afford quality care, while protecting their hard-earned assets, wasn’t enough to cover their care. Not to mention the fact that their premiums kept rising along the way.

My parents made a mistake in buying long-term care insurance, and I learned from watching them not to do the same. I’m still not sure why things happened the way they did, but I was wondering what other options my wife and I have. Thanks for your help!

A. I’m sorry to hear about what happened to your parents. Unfortunately, they are not alone.
More than 7 million Americans own long-term care insurance (LTCI) policies. And, as recently as 2002, nearly a thousand insurers offered the product. Now there are probably a dozen left. How could this have happened?

Sky-high premiums force unpleasant results

The past few years have brought huge premium increases for most policyholders, often more than doubling what they were initially paying in premiums. A couple of years ago, the federal government’s long-term care insurance policy holders were hit with a 225% increase. More recently, Mass Mutual announced that it would seek approval from regulators to charge an average of 77% more on many of its established long-term care policies.

Some seniors are struggling to pay the increasingly unaffordable premiums, while others who are trying to keep them affordable are cutting back on the amount of benefits the insurance will cover. This leaves seniors to either dig into savings or be at risk of not having the coverage they need when they eventually need it. Still others are abandoning policies that they already sunk tens of thousands of dollars into—leaving them with no coverage at all!

The Cost of Long-Term Care Continues to Rise. What Options Do Seniors Have?

Luckily, there are other options for those who still want the peace of mind of having long-term care insurance.

Several years ago, MetLife and Prudential stopped selling traditional LTCI policies, and they were joined recently by John Hancock. These were three of the biggest insurance companies selling LTCI. Pretty much every LTCI company has also increased the premiums for existing policies. Genworth, one of the other biggest LTCI providers, for now still offers new policies, but it was purchased by a Chinese company and has increased the premiums for existing and new policies. Some companies are still selling traditional LTCI policies, but premiums are generally guaranteed for one year only, and can be increased if the insurance company gets your state insurance commissioner’s approval.

What are some alternatives to traditional long-term care insurance?

Many life insurer as companies are adding long-term care benefits to their permanent life insurance policies that increase in value over time. These are called hybrid policies. With hybrid policies, consumers have policy options that provide both life insurance (or an annuity) and long-term care coverage.

Industry trade group LIMRA reports that 260,000 hybrid policies were sold last year vs. 66,000 traditional LTC policies sold in 2017.

These are some of the advantages of hybrid policies:

– Withdrawal of funds: A holder of a hybrid policy may withdraw funds from the policy for long-term care needs until funds run out.

Unused benefits go toward a payout to heirs: If a policyholder never needs long-term care, the death benefit would still be paid. Premiums paid in many policies can be refunded during your lifetime if long-term care turns out to be you decide you don’t wan to continue the polic for any reason.

-Single premium option: Many hybrid policies are considered to be asset-based long-term care coverage, because the purchaser pays a single up-front premium for a policy that provides both traditional life insurance coverage and a rider that provides LTC coverage. An advantage of the single-premium option is that generally it is easier to obtain coverage even if an individual has a pre-existing health problem.

With the single-premium policy, the insurance company specifies a specific lump-sum that is available for LTC-related expenses, such as home health care, assisted living expenses, or full-time nursing home care. After a specified surrender period, such as five years, the policyholder can typically elect to receive a full refund of premium if for some reason they decided they no longer need the insurance coverage.

The lump-sum option is viable one for individuals who have some assets set aside, such as an IRA or a CD, that are not required for day-to-day living expenses.

– Extension of benefits rider: You may be able to purchase an “extension of benefits rider” which would allow you to receive monthly benefits after the base amount has been exhausted. This could double the time frame for receiving LTC benefits, or even provide you with lifetime benefits for a fraction of the cost of traditional long-term care insurance.

How Can I Learn More About Hybrid Policies

Besides being a Certified Elder Law Attorney, I am also an experienced retirement planning advisor and long-term care financial advisor. My company, Lifecare Financial Services, LLC, has been in business since 2006. I am highly knowledgeable about using fixed indexed annuities to provide safe retirement income while also helping to pay for long-term care. In addition, I advise my clients about using hybrid insurance policies and asset-based policies that combine life insurance or an annuity product with a long-term care benefit, and also provide recommendations about using tax-free money (money in your IRA, 401(k), 403(b), or Thrift Savings Plan) to help pay for long-term care. Learn more here.

Hybrid asset-based long-term-care insurance is not right for everyone

Hybrid asset-based long-term care insurance may or may not be right for you. Please know that there are many other asset protection strategies to protect your assets from the potentially devastating costs of long-term care. Please call us at one of the numbers below to make an appointment for an initial consultation, or sign up for one of our upcoming seminars to learn more:

Fairfax Elder Law: 703-691-1888
Fredericksburg Elder Law: 540-479-1435
Rockville Elder Law: 301-519-8041
DC Elder Law: 202-587-2797

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About Evan H Farr, CELA, CAP

Evan H. Farr is a 4-time Best-Selling author in the field of Elder Law and Estate Planning. In addition to being one of approximately 500 Certified Elder Law Attorneys in the Country, Evan is one of approximately 100 members of the Council of Advanced Practitioners of the National Academy of Elder Law Attorneys and is a Charter Member of the Academy of Special Needs Planners.

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