Ten Key Issues to Consider When Purchasing Long Term Care
These days, one of the primary topics brought up by clients is what to expect with respect to care as they age. Further, most people express the desire to have care provided in their home. To that end, one strategy to consider is Long-term care Insurance. Here are ten issues to consider when purchasing long-term care insurance (LTCI).
1) Your health. Underwriting to determine insurability is the first step. Specifically, the presence of memory-related or dementia issues will prevent LTCI as an option. Family history may have an impact.
2) Amount of coverage needed now and at advanced ages. LTCI is buying a pool of money to pay for care at home, an assisted living facility or a nursing home. The cost of care isn’t the only factor. It’s not always necessary to insure for 100% of the cost of care when other sources of income are available. Additionally, consider inflation options.
3) Evaluate the size of deductibles. Hybrid products combine self-insuring with insurance. For example, if you own a tradition LTCI and go on claim, most products waive premiums. On the other hand, if you purchased a 10-pay hybrid life insurance / LTC product you may still have to pay the entire 10 premium payments, even if on the claim, in order to receive your full benefit.
4) Is there a need for life insurance later in life? Life insurance is used for many things, including estate planning, business purposes or other specific needs. Linked life insurance / LTC plans accelerate the death benefit to pay for LTC – meaning the death benefit goes away or has a small residual amount. If life insurance is expected to be needed later in life, make sure this is considered.
5) What about a pure protection product? If someone is looking for “pure” LTCI protection, then traditional standalone coverage offers the most leverage per premium dollar. For example, a 55 year-old married man can receive $300,000 of LTC protection growing at 3% annually for about $1,500 monthly premium. For an additional premium, adding a rider that redirects the premiums to a traditional life insurance policy upon death could help answer a common question, “What if I never use it?”
6) What is the planning budget? Older policies often offered unlimited lifetime and 5% compound inflation coverage at a reasonable (and in hindsight, underpriced) premium rate. Now the premium for that same benefit is much higher. Because of this spike, LTCI buyers often start by choosing a reasonable premium for their monthly budget and working into a plan design from there.
7) Are premium guarantees important? According to the 2015 Society of Actuaries Pricing Project, the current generation of LTC policies has a very low chance of having substantial rate increases in the future. Both carriers and regulators have adjusted pricing and assumptions to a conservative level. However, for folks who are extremely risk-averse and concerned, many of the combination plans offer guaranteed premium rates.
8) Has the client accounted for the cost of informal long-term care? There are two types of long-term care provided at home: care provided by professionals and informal care often provided by family members, e.g. an adult daughter/son. The impact of informal care can be meaningful. Often the caregiver will have to take time off of work and sacrifice income. An LTCI plan that pays for informal care regardless of who is providing the care will provide more flexibility but costs more.
9) Are there tax advantages of LTCI? Do you own a business or are self-employed? Do you have a health savings account? Traditional LTC can allow for some premium deductions in many cases. Your tax professional and financial advisor can work together to identify potential tax advantages that may apply to your situation.
10) Consider the financial strength and reputation of the carrier. Rating services can provide guidance, as they are based on historical performance and company financial strength.
This is a list of ten key issues to consider. As with many planning objectives, each situation presents unique variables. Make sure to consult with an expert to identify which type of coverage is most appropriate for you.
By Anthony C. Williams, CWS, ChFC, MRFC, CLU | Investment Advisor Representative | President & Founding Partner of Mosaic Financial Associates & Orthopaedist Advisory Group | Securities and advisory services offered through Cetera Advisors LLC, Member FINRA/SIPC, a broker/dealer and a Registered Investment Advisor. Cetera is under separate ownership from any other named entity.