Long Term Care Insurance: What are the Options?

For a time, it seemed that Long-Term Care insurance was going to be a staple of elder planning. Many people require long-term care as they age, and the costs for care can be extremely high: from adult day care, which costs on average $18,200 per year, up to nursing homes, which average $90,520 per year. This can rapidly deplete a lifetime of savings and put a burden on your family.

Long-term care insurance is an option that has certain benefits. You can purchase a policy and it will pay out if you ended up needing long-term care. Unfortunately, premiums tend to be high; often around $8,000 per year. There is a certain amount of risk involved, as well, because if you passed away without needing long-term care, there was no way to redeem any of the money paid out.

Long-term care insurance is also only offered by a few insurance companies, so there are not many options to “shop around” for a lower premium. Many companies also include exclusions to the policy (such as a yearly cap on payments, or having certain treatments not covered.) The underwriting process can also be cumbersome, requiring things like medical exams or having an age requirement.

A new option that is gaining popularity, however, is a “hybrid” policy that is a cross between the Long-Term Care and a Life Insurance policy. This hybrid works like a traditional life insurance policy, which pays out upon the policy holder’s death, but those same funds can be drawn early to pay for long-term care if the need arises. This can be more palatable to the consumer, as there is a guaranteed benefit no matter what happens.

There are some drawbacks to hybrid policies, however. Currently it’s common to have one large buy-in for the policy followed by regular premiums, and that cost can put it out of reach of some clients. On average, it is 5-15% more expensive than a Long-Term Care policy. Other clients may find that they can yield similar financial results through traditional investments instead of an insurance policy.

It is also possible to find a Short-Term Care insurance policy, which is less expensive but also less comprehensive, and can pay for up to one year of care. Roughly half of Long-Term Care claims are for less than a year, which is something that could be covered by a Short-Term Care policy for a fraction of the cost.

When considering insurance options, however, it is important to keep in mind that if a long-term care need arises, it is possible to run through the entire benefit amount while still needing additional care.

If you choose to explore obtaining long-term care insurance, we would recommend having a sit-down discussion with an agent to see what option would be best for you. Make sure to consider your other investments and family resources. Be clear on what the benefits, riders, and exclusions of the policy are. With this information, you can decide which policy will be most beneficial.

For additional information, we recommend the article “Would a Hybrid Insurance Policy Work for Your Client?” by Lori Parker, Esquire, published in the NAELA News Jan/Feb/Mar 2018 issue.

Colin Austin