Long term care insurance is a hot topic.
It is designed to protect against asset depletion when a person is deemed unable to perform two of the six activities of daily living, such as bathing and eating.
We believe the increased interest for long term care insurance is from personal experience. Many people in their mid-40s to mid-50s have recently seen the reality of long term care needs with their parents. The challenges of coordinating care for a parent are only compounded when there are limited funds to pay for the necessary care. However, despite the realities of long term care needs, there remains a sizeable gap in the public’s perception of long term care.
There used to be a saying about long term care: If you can afford it, you don’t need it; and if you need it, you can’t afford it. The truth is that a thorough review of someone’s asset base and financial needs often reveals that long term care insurance is a prudent hedge against asset depletion.
Typically there are two scenarios that occur when a person needs for long term care: Home care or nursing care at a facility.
Home care: Having a home health aide visit might cost $150 per day, depending on where in the country you live. That works out to $50,000 a year – a figure some people can afford.
- Nursing care facility: A stay at a nursing home is about $250 to $350 a day. That works out to $100,000 a year – a figure fewer people can afford on their own.
One strategy we recommend is for the client to self-insure up to a point and only insure the portion that they are not able to meet financially. For example, if a client can afford home care, but not nursing care, then insure the difference rather than a policy for the full amount. This is one example of how a long term care policy can be tailored around the client’s needs.
Old policies are gold.
Many people with old long term care policies are experiencing premium increases, which is happening with the majority of carriers. Because the older premiums are more competitive than what is on the market today, sticker shock is to be expected. Those who are seeing a 70% – 90% increase in premiums should understand there are options.
Many cost-of-living riders have a 5% compounded interest; the benefits purchased at $150/day have increased 5% every single year for the last 10 years. This means a lot of policies are now far richer than what is actually needed.
If the inflation rider was changed from 5% rate to 2.5% rate, going forward, the rider will be completely in line with the cost of care. These reductions can reduce or eliminate premium increases completely.
Just remember: there are ALWAYS options. Replacing an old policy is generally not the best course of action. Advisors should work through old policies to discover how to make them affordable.
Understand new benefits.
In an evolving marketplace, we are seeing carriers present new benefits to tackle the long term care dilemma. Benefits like cash riders and limited premium payment options allow for greater customization within a client’s financial plan. Reviewing long term care now can provide clients with benefits they may not have considered in the past.
There are a lot of moving parts in long term care, but there are also a lot of solutions – you just need to start the conversation.
What long term care planning have you done? What’s your game plan?
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