For some people, buying any kind of insurance can be a tough pill to swallow. The prospect that you’ll never use it, thus wasting your money on premiums that could have been utilized for other things, can be troublesome.
But where Long Term Care (LTC) insurance is concerned, the stakes are different. It’s still insurance, yes, but it is not like car insurance, where you truly might never use it. You are likely to need long term care at some point in your life—it is just a matter of when.
So with that, the challenge of coverage—what and when to buy—becomes complex. An estimated 90% of people are without LTC insurance, so it does seem like a challenge that many aren’t up for. (1) (video)
There are now alternatives to traditional LTC insurance that make it easier to afford and more flexible to use. Below we discuss the pros and cons of each type.
Traditional Long Term Care Insurance – The Basics
Unlike everyday health insurance, LTC insurance is designed to cover long-term services and support for you in the event you become unable to care for yourself. It may cover in-home services, or services rendered in an assisted living environment.
Typically you are reimbursed a preselected daily amount for services assisting you with activities of daily living such as bathing, dressing, or eating.
There is a range of care options and benefits with these policies, allowing you to get the services you need, where you need them.
Sounds great, right? Well, these policies can be really expensive, and rate hikes are always an option for insurance providers. It’s worth noting that insurers can petition the state departments of insurance to raise your premiums, sometimes as much as 50% per year. They have indeed done this, and it caught a lot of policyholders off-guard.
Why do they raise rates? In short, it’s because they don’t have enough reserves to pay out in the event of a large number of policyholders filing claims all at once. This speaks directly to the Silver Tsunami heading our way, as vast numbers of Baby Boomers hit retirement age. As recently as August 2019, in fact, controversy surrounding GE’s potential inability to pay out on their LTC policies has come to the fore.(1)
When is the right time to buy an LTC policy?
The optimal age is typically in your mid to late 50s, for two main reasons:
- You’re likely to still be in good health and therefore pass underwriting.
- The rates will be more reasonable, because you are unlikely to use the benefits. (2)
When is it too late to buy?
Holding out can be a game of Russian roulette in some ways. If you keep foregoing a policy, and ultimately find yourself either too old or suddenly injured and therefore uninsurable, it’s game over where traditional LTC policies are concerned.
Paying out of pocket for all your care is not an option for most people, and honestly, as much as they want to help, calling on family members to provide care for you is not a viable option either. Alternatives are now available though, for those situations where a traditional LTC policy is not a good fit.
A Short Term Care Policy – Straight To The Point
If you don’t qualify for (or can’t afford) a long term care policy, a short term policy may work. These offer care for up to a year, lower premiums than traditional LTC policies, and less strict underwriting rules too. So if you waited too long to buy traditional LTC insurance and then you broke your hip, this kind of policy might be the one for you.
Though, with a short term policy like this, if you really need to lean into care, you’re likely to find it lacking. The coverage is often either too minimal or may not offer what you want. Some policies only cover in-home care, and some only cover facility care, for example.
While some experts look at short term policies as a “some insurance is better than none” proposition, others say the cost/benefit analysis doesn’t check out. If a short term care policy pays out only $120 per day for a set amount of days, say 100, it’s easy to see that the longer the policy is retained, the less valuable it is.(3)
A Hybrid Policy – Waste Not, Want Not
Hybrid policies get right at that “use it or lose it” bugger of an insurance dilemma. It is difficult to consider the proposition of sinking $4,000 to $8,000 per year into policy premiums that will pay out nothing if you pass away in your sleep.
So, hybrid policies combine long-term care insurance with permanent life insurance policies (such as universal life insurance), to get the job done. Plus, there is a monetary benefit that is paid to your heirs when you die.
With hybrid policies, benefits are guaranteed, which is another nice feature. If you pay your premiums (usually for 10 years or less), you will have a contractually guaranteed death benefit, guaranteed cash value, and a guaranteed amount of long-term care coverage too. Traditional long-term care insurance policies do not have these guarantees.
The main complaint with hybrid policies, is that they do a lot but excel at very little.
A lot like the short-term care policy, over the long haul, the benefits don’t add up to much more than you pay in.
In addition, the premiums are paid over a shorter period of time (usually 10 years), making them unaffordable for some. (4) But, if you’ve found yourself coming into money later in life, this kind of policy might be exactly what the doctor ordered.
Different Strokes For Different Folks
Tough decisions aside, this life really can be beautiful. One way this is so, is in our diversity. Not just physical variables like skin, hair and eye color. It’s also in the different paths we travel through life, and our unique qualities that make us who we are.
Whatever your situation in life thus far, the fact is that the future is unknown. When we know better, we can do better, so maybe now you can look at your long term care options with new eyes. Perhaps now there is something to better suit you, and your own unique path in life.
If you’re unsure on where to begin, let’s look at it together. We are your resource, we can help secure your path. Let’s talk about your options.
Citations:
2 https://www.comparelongtermcare.org/the-cost-of-waiting-to-buy-long-term-care-insurance
4 https://www.nerdwallet.com/blog/insurance/hybrid-long-term-care-insurance-makes-sense/
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