Many of our clients and their moms and dads (if they were smart) bought long-term care insurance (LTCI) five, 10, 20 or even 30 years ago. Now, as we work with prospects and clients in their 40s, 50s, 60s and 70s who have not yet purchased long-term care protection, we are facing a whole new world of LTCI options.
LTCI today is certainly not what it used to be. There have been significant changes in the products, particularly over the past few months. Rate increases are common. It appears the unlimited benefit period, zero-day elimination period, and large discounts for couples and for good health may be a thing of the past. Underwriting, too, appears to be changing, and familial history is likely to begin to play a more important role in the underwriting process. Women, particularly single women, will be facing higher rates in the very near future.
With all the changes that are continuing to shake up the long-term care world, does it still make sense to discuss traditional LTCI? Is traditional LTCI still a good part of a sound financial plan? To answer these questions we need to re-examine the reasons our clients have bought LTCI in the past and see if these reasons can still apply with the dramatic changes that are taking place.
Many studies affirm that most people buy LTCI to:
- Protect assets
- Remove a burden from loved ones
- Assure choices and flexibility in the type of care needed
Protection of assets
A recent study overseen by Age Wave and highly respected author and researcher Ken Dychtwald reported that the No. 1 retirement worry is uninsured medical expenses. Now that an unlimited benefit period is a disappearing option, does a policy with a finite amount of care/dollars still do enough to pay for these expenses and protect assets?
A policy today that pays a monthly benefit of $9,000 (for 10 years of care, with 5 percent compounded automatic inflation protection, a 90-day elimination period for facility care, and a zero-day elimination period for home health care) has an initial pool of money of $1.08 million ($9,000 per month times 120 months). For a married 55-year-old individual (with a couple’s discount), this could mean an annual premium of about $6,000. In 25 years, this pool of money is worth about $3.5 million. Compare the potential for claims benefits versus the amount of premium dollars spent over 25 years and it is clear that should care be needed, LTCI is a wise purchase and does indeed protect assets substantially.
Of course, our clients may never need care at all, but because we are living longer, the likelihood of those in their 40s, 50s and 60s needing care is greater than that of their parents.
At the beginning of the 20th century, life expectancy in the United States was just 47. Today, according to Age Wave, it is approaching 79. Unfortunately, living longer is not always synonymous with living better. The Centers for Medicare and Medicaid Services estimates that 60 percent of people over the age of 65 will need some form of long-term care. (Source: “Funding Long-Term Care,” Dec. 2008, Senior Market Advisor.)
See our infographic: When I'm 65 ...
Even an example with a smaller monthly benefit and initial pool of money illustrates the continued value of LTCI as a protector of assets. The same 55-year-old individual purchasing a long-term care policy with a monthly benefit of $4,500 (for 3 years, with 5 percent compounded automatic inflation protection, a 90-day elimination period for facility care, and a zero-day elimination period for home health care) has an initial pool of $162,000. The annual premium is about $2,000. In 25 years, this pool of money is worth about $520,000. Again, even with wise investing of the premium dollars, it is certainly a cost-effective decision to consider LTCI.
Removing burden from loved ones
Another primary reason individuals buy LTCI is to help remove the burden from loved ones. LTCI policies of this generation score high in this area. Today’s policies have many more excellent features and benefits than those in the past. Care managers, if desired, are available throughout the claims process to help plan and organize care. Cash benefits are sometimes available when family members provide care, and benefits are sometimes even available for an uninsurable spouse. Of course, in addition to the removal of some of the physical and psychological burdens, the financial burden is dramatically lessened. Having a long-term care policy in place is an act of love that speaks loud and clear should care ever be needed.
Assuring choice and flexibility in the type of care needed
A 2010 survey conducted by Age Wave confirmed that 79 percent of us would prefer to receive care in our own homes rather than in nursing homes or assisted living facilities. Nevertheless, sometimes home care is not an option. Good policies today allow individuals to receive care in any of these settings as well as in adult daycare centers. Additionally, although most insurance products are no longer offering coverage on day one for facility care, many companies do offer the option of a zero-day elimination period for home health care.
So, is long-term care insurance different than it was a generation ago? Sure it is, but the need for long-term care insurance remains unchanged. Does it still make sense to discuss this with your clients as an effective way to protect assets, remove burdens from loved ones and provide choice and flexibility? Absolutely!