In the previous post we looked at Long Term Care (LTC) services and when people need them. Included in that summary was how expensive LTC can be. As discussed, someone can work their whole life to build a nest egg of assets, only to have those assets depleted due to a chronic illness. The alternative is to shift that financial risk to an insurance company by taking out a policy while one is still insurable.
We also covered one of the options which was a life insurance policy with "living benefits" or a LTC rider to help cover these expenses. One advantage of this is that if the insured should die unexpectedly, the policy will still pay a death benefit.
Another option is the traditional stand alone Long Term Care Insurance (LTCI) policy. These insurance policies have been around for a relatively short period of time and there have been a lot of changes over the years. And even though they are pretty comprehensive in that they can help pay for care in a facility or for "in home" care, they also can help pay for other expenses, like construction of a ramp or "informal caregiver" training, when a family member is involved.
There are other issues that one needs to be aware of when it comes to LTCI. First, the underwriting process is different (as in stricter) when someone applies for coverage. The carrier may want to have a cognitive test done, for instance. I had a client get declined for coverage because he had a history of heart problems and smoked a few cigars each week. Separately they may not have been a problem but the underwriter put the two together and saw that as a potential risk.
Also, most stand along LTCI policies usually have a provision that allows the carrier to raise the rates on the policy, unlike the previously mentioned life insurance which would "lock in" on a rate. After the financial crisis of 2008, several companies increased their rates on their in-force books of business, some doing it more than once. For those who are trying to do the right thing and plan ahead, this provision can come back to bite them.
Yet another thing to consider is that a lot of insurance carriers have gotten away from offering LTCI policies. These companies have either stopped selling new policies but still keep the old ones on their books, or they have sold the books of business to other carriers. This is due to the fact that when these policies were developed they did not have a lot of claims history to go on when setting the premium rates. As claims mushroomed, the number of carriers offering these policies shrunk.
One more thing to be aware of is how these policies pay. Typically, LTCI pays claims as a reimbursement, which means the insured will need to send the bills for LTC expenses to the insurance company. Most nursing and assisted living facilities will take care of this matter for you, but remember that if you are a patient in one of these facilities you may need to rely on a family member to handle this.
With all of that to consider, I still think that LTCI can be a great value as long as the client is aware of how they pay benefits and the multitude of features. A good agent will discuss all of this with a prospective client in detail and should also include other family members as well. These policies may seem expensive but can save you and your loved ones tens of thousands of dollars.
In the next post we'll look at one more option that is available. In the meantime, please stay healthy!
Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life and disability insurance coverage. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog!
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