Long-Term Care Insurance is a fun topic right? Unfortunately, a majority of aging adults will need some level of long-term care, generally towards the end of life.
If in your 50’s or older and you have assets you’d prefer to see pass to your spouse and family rather than go to pay for Long-Term Care, we can help you explore various asset protection strategies. Insurance, which we sell, is one of those strategies. The predominant type of policy purchased for Long-Term Care over the last 25 years has been a policy where you pay a monthly or annual premium, and have a defined benefit amount that can be claimed when you can are no longer able to perform 2 or more of the 6 activities of daily living (*ADL) which are defined below.
There are two major flaws with this type of policy.
1) If you never make a claim, no value is ever received for all the premiums paid.
2) The premium rates are not guaranteed and can, and most likely will, be increased by the insurance companies.
The cost of care has been on the rise at the same pace as college tuition and much faster than general inflation. In order to cover these increasing cost, the insurance companies have asked the states for permission to raise rates on current policy-holders. The states, many of whom have some form of back-stop guarantee if the insurance company were to financially fail, have granted this permission. Policyholders have been getting notifications explaining the rate increases; some as high as 98%! Generally, the insurance company will offer you choices of higher premium payments or reduced benefits; for example: instead of paying the higher premium, you could reduce your 5-year $200 per day benefit to a 3-year $150 per day benefit. Unfortunately, we don’t see these increases stopping due to the high percentage of people who will live long enough to require care.
These traditional types of policies can still be purchased, but we generally recommend an altered insurance strategy. The strategy is a life insurance policy with a long-term care rider attached. This structure eliminates both of the major flaws with traditional policies. If you never need the long-term care your beneficiaries will receive the life insurance policy. The premium cost can be contractually guaranteed to remain the same. In certain circumstances, we have been able to help people replace traditional long-term policies that have gotten more expensive with a life insurance based long-term care plan.
*Activities of Daily Living include:
- Eating
- Bathing
- Dressing
- Toileting (being able to get on and off the toilet and perform personal hygiene functions)
- Transferring (being able to get in and out of bed or a chair without assistance)
- Maintaining continence (being able to control bladder and bowel functions)
Additional interesting statistics around long-term care lengths of stay:
Average Length of Stays (Nursing Homes) | |
5 years or more | 12.0% |
3 to 5 years | 12.0% |
1 to 3 years | 30.3% |
6 to 12 months | 14.2% |
3 to 6 months | 10.0% |
less than 3 months | 20.0% |
Average Length Of Stay in Years | |
Female | 2.6 years |
Male | 2.3 years |
Married | 1.6 years |
Single / Never Married | 3.8 years |
Widowed | 2.3 years |
Divorced / Separated | 2.7 years |
As always, we hope you find the Weekly Market Review both interesting and informative.
Have a great week!
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Trevor N. Coe, CFP