2/4/2013 9:45 PM ET|
3 kinds of long-term care coverage
Finding the kind of insurance that suits your situation can be a challenge; here are the advantages and drawbacks of each option.
When shopping for long-term care insurance, you'll find three main options: a stand-alone long-term care, or LTC, policy, a fixed annuity with LTC benefits and a life insurance policy with an LTC rider.
Which one is right for you?
"Each has its pros and cons," says Jesse Slome, the executive director of the American Association for Long-Term Care Insurance, an industry trade group.
Here's a quick look at the main considerations surrounding each form of long-term care insurance coverage.
Long-term care policy
According to the nonprofit Insured Retirement Institute, there are four risks to a stand-alone long-term care policy: It can be expensive, it acquires no cash value, the premium may increase, and the underwriting can be time-consuming.
Jim Sullivan, a certified public accountant and personal financial specialist based in Naperville, Ill., confirms that the cost and "premium creep" are top concerns for his clients.
"Affordability is a big issue. If you buy a policy and after a couple of years you just can't afford it anymore, the likelihood is that you're going to drop it, and then all that money is wasted," he says. "Most of my clients have opted for the simpler form of life insurance with a long-term care rider."
Slome says the traditional LTC policy's biggest sales obstacle has led to the proliferation of hybrid life and annuity products with which it now competes.
"People have this misconception that if they buy long-term care and don't use it, they've wasted their money," he says. "We don't look at any other form of insurance that way. That's what makes the sales pitch for hybrid products attractive."
Slome says that if viewed in the same light as home or auto insurance, an LTC policy "is a much more affordable way to cover the larger risk because you're paying small amounts every year." In his view, that means you're keeping more of your money invested for retirement, the returns on which will help offset your LTC premiums along the way.
Sullivan agrees: "If you're looking for pure long-term care protection, dollar for dollar you can't really beat a good long-term care policy," he says. "I would rather see a client get a smaller policy they are comfortable with and can afford than a policy with a risk that they're going to drop it."
Fixed annuity with LTC benefits
Fixed annuities, those CD-like investment vehicles that can provide an income stream for life, are a tough sell in the current low-interest-rate environment. However, if you're a risk-averse shopper who can't pull the trigger on a use-it-or-lose-it long-term care policy, an LTC annuity may be worth exploring.
"It's generally a lot less expensive than a long-term care policy," says Jean Dorrell, a certified estate planner with Senior Financial Security in Ocala, Fla., who sells fixed annuities. "I honestly think LTC policies by themselves are a bad deal; the rates increase, and you pay into it for 10 years and drop it."
Instead, Dorrell directs her clients to a fixed annuity with LTC benefits.
"The majority of them, when you put $100,000 in, that's your $100,000 to spend, whether you need long-term care or not. But by putting the rider on for an extra 1.5, 2 or 3% per year, you may have double to use for LTC," she says. "You put that $100,000 in, you pay that rider fee for, let's say, seven years -- now your (annuity) balance is, say $150,000, but you have $200,000 in there for long-term care."
The annuity approach has several advantages: You retain access to your money (although fees usually apply), the cost of the LTC rider may be less than an LTC policy, and you can obtain coverage without health underwriting if you've been turned down for a stand-alone policy.
The disadvantage: Besides that steep upfront investment, the rider fee can eat into your annuity's interest income, and you'll be locking that money up today at a relatively low rate.
"With interest rates so low, that's just not attractive," says Slome. "But annuities will take off once interest rates start to go up again."
Life insurance with an LTC rider
There's one important question to ask before you consider a life insurance policy with an LTC rider: Do you need life insurance?
"If you don't, why would you buy it?" Slome asks. "The life insurance companies are not giving away free life insurance to incentivize you to buy long-term care protection."
The life insurance approach to long-term care coverage is fairly straightforward: You invest in a cash-value insurance product -- whole, universal or variable universal life -- and select your LTC coverage terms in the rider. Once you trigger your long-term care insurance coverage, it comes out of your policy's death benefit, usually on a prearranged schedule. At death, your beneficiaries get what's left of your life insurance.
The upside: If you don't use the LTC, you've saved the premiums of a stand-alone policy.
The downside? "Some of the combo products I've seen with an LTC rider tend to be fairly expensive," says Sullivan.
Slome adds that because the LTC money comes out of your death benefit first, "you're just getting back your own money, and if you live beyond having spent your own money, then it will trigger the long-term care portion of the policy."
So what's your best move? Slome offers this advice: "If your need for long-term care is relatively short, meaning a year or two, consider a hybrid life product. But if your need is likely to be longer, you're going to blow through the policy and be back on your own savings. Then you're going to regret that you didn't buy a traditional long-term care policy."
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I work for a major insurance company, and I think LTC is a great option. The younger you are, the larger the pool of money that you can aquire, and the cheaper the rate. LTC policies can be used for nursing home care, assisted living, or at home care. If you can stay in your home and have help come in or have family members trained to help(yes, the funds can be used to train family members in proper care), the pool can last MUCH longer as home based care is the least expensive use of your funds. LTC keeps you out of spend down for a longer period of time, and with the number of baby boomers out there living longer 3 in 5 people will need some form ot LTC as we are living longer. Most families cannot afford to have one member quit work to take care of a aging parent or in-law. It's a great solution and any agent worth their commission will work to find the solution best for you, your family AND your budget.
What the article failed to mention is that if you are already in poor health or on the verge of needing care, you cannot buy a LTC policy. If you are anywhere between your 30's to mid 50's it's the BEST time to get in on the policy.
After doing this for 20 years, I have come to the conclusion that it really pays to work with someone who specializes in this field. They can compare the strengths and weaknesses of each option as it would fit into your personal financial situation and planning style.
Many insurance and financial pros today really only have access to one or two products or companies. Thus they favor those solutions (the only ones they can earn a commission from). Consumers should ask "how many insurers an agent is APPOINTED with" as the term appointed reflects their ability to sell that company., A decent specialist today should be appointed with five or more companies offering LTC solutions.
Ask lots of questions. You only buy this coverage once (unlike other insurance products which you can change from year to year) so take time and you'll be pleased with the results.
American Association for Long-Term Care Insurance
I work with a major insurance agency that handles senior products in all 50 states and have seen too many situations where people regretted not purchasing Long Term Care Insurance. If you wait till after you retire odds are the premium will be extremely high and there is a good chance you will not qualify. In basics Long Term Care is an asset protector.Long-Term Care is built to cover Custodial care which Medicare and Medicare Supplements do not cover. Medicare Supplements fill in the gaps of Medicare healthcare expenses, while a LTC policy covers services not covered by Medicare.
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