New Ways to Protect Against Long Term Care Costs

Today I want to introduce to you an insurance product that opens up a world of opportunity for people to protect their wealth against the cost of long term care.

The entire long term care industry has gone through a rapid and dramatic change over the last 2-3 years. Less and less carriers are selling this product for a multitude of reasons:

• People living longer, especially women
• Costs of the products
• Premiums are going up, not only for new policies but existing policies as well
• Premiums are not guaranteed to stay level
• Soon carriers will introduce gender-based pricing potentially increasing costs for women by up to 40%

That, coupled with the fact that every dollar in our personal economies is scarce, as we discussed in our recent blog The Efficiency of Money, people are concerned about putting money into a long term care policy knowing there’s a possibility their premiums may go up and they may never have a claim. We call this type of policy “if” insurance or “use it or lose it” insurance. Not to say that they don’t have a place, in fact I own a traditional long term care policy. The one that I bought many years ago is what is known as a 10 pay. So I am finished paying after 10 years. But what the insurance industry is moving toward are solutions that might be a better fit for some people. These solutions are part of a life insurance policy and, as you know, everybody dies, so you can’t lose the money. Also pricing for life insurance is far easier for insurance actuaries as they have many more years of experience in dealing with life expectancies and mortality than they do with long term care.

This new product is being introduced as a rider on whole life insurance and limited pay life insurance, allowing the individual to take up to 90% of the death benefit from day one, and use that for the cost of their care. For a person who cannot do 2 out of 6 Activities of Daily Living (ADL), they can make a claim against their life insurance policy to help pay for their care.

For instance, today I will be talking to a client who is 47 years old and thinking about converting his term insurance to permanent life insurance. If he did that, he could buy $1,000,000 of permanent life insurance with a premium of $20,790, which would build up cash value, death benefits and allow him to save money in the policy. For an additional $686.19, he will be able to use $900,000 of that $1,000,000 death benefit to pay for long term care, should he need it. For example, if my client chose a 4-year benefit period, he would have access to $225,000 a year for his care. There is an option to have the long term benefit pool increase over time to hedge against the increase of costs in the future.

If he never puts in a long term care claim, the money that was put into the policy is not lost. Click here for an illustration of how this would work.

For people approaching retirement who are 40, 50, 60 years old, and thinking about a good place to put their money, these programs make a lot of sense. Each $1 that goes into a plan like this provides numerous benefits. In fact, it is like there are 3 pools of money:

• Cash value (which grows tax deferred and is available to create income for retirement or other needs)
• Death benefit for family income, estate liquidity, or whatever needs the client may have
• Long term care services if necessary

And as we know, life is uncertain, so we don’t know which pool we will need at any given time.

To learn more about the LTC Access Rider, click here and then give me a call. I’ll be happy to discuss it and show you how these types of programs might work for you or your clients.