Is Traditional Long Term Care Insurance Dead?


Long-Term Care is a very REAL threat to your retirement. It includes a variety of services (both medical and nonmedical) for people with a chronic illness or disability who cannot care for themselves. A study by the US Department of Health and Human Services says that 4 out of every 10 people who reach age 65 will enter a nursing home at some point in their lives. About 10 percent of the people who enter a nursing home will stay there five years or more.  In 2014, the average annual cost of nursing home care in the United States was $83,950 for a semi-private room.  The average annual cost for assisted living was $36,000 and home health aides were paid on average $19 per hour. The average cost of a nursing home for one year is more than the typical family has saved for retirement in a 401(k) or an IRA! 


To guard against this financial threat you can purchase Long-Term Care Insurance. Private long-term care (LTC) insurance has grown in popularity however premiums have risen dramatically in recent years. The longer you wait to purchase coverage, the more expensive the policy becomes. The most common policy requires that a person be unable to perform 2 or more activities of daily living which include eating, dressing, bathing, transferring (walking), toileting and continence without substantial assistance OR they need substantial assistance due to a severe cognitive impairment. In either case a doctor must provide a plan of care in order to receive your benefits. It’s worth noting here that you must apply and qualify for this insurance. Your premiums are based upon your age and health at time of application. Keep in mind they are not concerned with health conditions that are likely to kill you. They are terrified you will live forever and need help doing it. For example, if you have been issued a handicap-parking permit, you will probably be denied coverage. Yikes!


What if you do obtain coverage but never need it? Much like auto and homeowners insurance, if you never file a claim you do not receive any financial benefit from the policy. There is a “return of premium” rider you can add to these policies that pays all or a portion of the premiums back to your estate if you do not use the coverage. This rider increases the premiums substantially making it cost prohibitive.


If you have already purchased a LTC policy, I recommend you review it with your agent. If you have owned it for awhile, you will probably want to keep it. If you purchased it recently, you may be interested in knowing about another type of protection available on new life insurance policies. By new, I mean those that have been issued over the last 5 years or so depending upon the carrier.


Now before I go any further, please understand this is not Long Term Care Insurance. It is, however, a living benefit that comes with every life insurance policy (including term) that JondaKnows offers and is called an Accelerated Benefit Rider (ABR). This rider is free of charge and allows you the potential to access part of your life insurance death benefit while you are living in the event you suffer a qualifying illness and may not be able to work and/or take care of yourself. The accelerated death benefit is not a reimbursement program. You don't have to keep receipts and submit mounds of paperwork. The accelerated death benefit is paid directly to you, is income tax free and there is no restriction on how you may use the funds you receive.


Certainly carrying disability insurance and/or long term care insurance is ideal for such situations and should be considered by everyone but not everyone can afford to purchase such coverage or keep the coverage in place for the rest of their lives. As such, ABRs are a great alternative.


For those of you who have been declined for long term care insurance and/or life insurance, there is another option. There are Index Annuities available that come with Guaranteed Income Riders where the income is enhanced when a doctor provides a written statement that you cannot complete 2 of the 6 ADLs. One company doubles the income payout for a limited number of months (Ex. 60 months). Another company comes to mind that triples the guaranteed payout for a limited amount of time.


Please don't be afraid to consider an annuity. I highly discourage a variable annuity due to market risk and high fees. However, a fixed and/or index annuity have zero stock market risk and offer guaranteed income for life which is exactly what you need during retirement. And now, some companies are offering to enhance that income when you need it the most! Remember, there is no medical underwriting for annuities. As long as you are not residing in a nursing home when you purchase an annuity, you can have a form of protection even if you have been declined for traditional long term care and/or life insurance.


In summary, I think traditional LTC is dying. I sold my share of it 15 years ago but can't remember the last time I recommended a policy. I believe the ABRs and enhanced annuity payouts offer a better use of my client's money in that if you don't need LTC you haven't paid for something you didn't use.


If you would like to know more about Accelerated Benefit Riders and/or Annuities with enhanced guaranteed income for life, call our office at 304.840.0001.



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