Suffice to say that the Long Term Care Insurance Market has had its fair share of challenges over the last few years, especially after the financial crisis of 2008. Some carriers left the market altogether, and those that stayed instilled challenging rate increases to their policyholders. Still, there is a great need for many to protect the assets they worked so hard to achieve, and to find a way to leverage their current portfolio to increase the pools of monies dedicated to Long Term Care expenses. All strategies amongst those that will be discussed below, begin to pay claims based on the insured being unable to fulfill 2 out the 6 Activities of Daily Living; Bathing, Dressing, Transferring, Toileting, Continence or Eating. So what products are in the marketplace that can be offered to clients to solve this problem? There are essentially 3 ways to purchase an LTC product.
1. Traditional Long Term Care Coverage – These policies offered by carriers typically feature a daily or monthly benefit, and can be sold with or without an inflationary rider to increase the pools of LTC monies over time. Once on claim, the insured ceases to pay claims, and the policy begins to pay out. These policies typically run between $2000 and $5000 per year every year for the life of the contract until the client goes on claim when they will cease to pay premiums. One can increase the yearly premiums, but reduce the time obligation to pay them by utilizing a pay to 65, or to pay it up in 10 years. While these contracts will pay claims to those insured in them, the biggest issue with these contracts is the following. Unlike Term Life Insurance, the yearly premiums are not guaranteed level, which means that policyholders can almost be sure of an increase in premiums at least once during the life of the contract.
2. Life Insurance carriers understand this problem, and have begun offering Life products that are purchased for the sole purpose of accumulating Long Term Care Funds as riders on Whole Life or Permanent Life insurance contracts. While the insured still pays annual premiums until going on claim, these premiums will not go up, and the policy grows in both cash value, as well as a large LTC benefit. So for about the same premium of a traditional LTC policy highlighted above, one can achieve the same results with a Life product without the worry of a rate increase.
3. Lastly, and one of the most unique, options to leverage assets is to purchase a single premium Life Insurance product that features a large pool of LTC monies. One carrier offers a product whereby a 54 yr. old female client makes a one-time premium payment of $75,000. By choosing the 3% inflationary rider, this policy will accrue a pool of $430,000 of LTC monies at age 80. Further, this contract is fully vested after 5 years, meaning that if for whatever reason the insured is in need of the initial $75,000 investment, the carrier will term the policy and return these funds with no penalty.
None of the above is a one size fits all, and the first approach to determining which option is better would be a discussion as to your current needs, assets, and the ability to make a financial commitment to any one of these options. LTC expenses can have devastating financial consequences on families who find themselves in these situations. The bottom line is if one has the means to purchase one of these contracts, then they should strongly consider doing so.