Do you know that almost 70% of people turning age 65 will receive some type of long term care during their lives? Unfortunately, the cost associated with LTC doesn’t come cheap. According to the U.S. Department of Health & Human Services, the average costs for long-term care in the United States (in 2010) were:
$205 per day or $6,235 per month for a semi-private room in a nursing home
$229 per day or $6,965 per month for a private room in a nursing home
$3,293 per month for care in an assisted living facility (for a one-bedroom unit)
$21 per hour for a home health aide
$19 per hour for homemaker services
$67 per day for services in an adult day health care center
Depending on the area you live, specialized care needed, time of day that care is provided, and additional factors, these averages could increase drastically.
With the rising costs of LTC, many carriers are continuing to phase out of traditional LTC coverage and rolling out numerous alternatives. To help you understand this changing landscape, we’ve created a simple guide on the types of products available.
Traditional Long Term Care
What It Is
A standalone policy that provides care a person may need in a nursing home, assisted living facility, adult day care or home health care.
Why It’s Good
- Does what it is designed to do if a person needs care
- Meets Medicaid Partnership requirements to protect a larger amount of assets from Medicaid spend down
- Still a reasonably priced solution for some people
- Tax Deductible for business owners paying the benefit out of their business
Why It’s Bad
- Underwriting includes more exams, more doctor records and fewer approvals
- Rate increases and increased reserving
- Genworth downgraded – they were a key carrier in LTC for years
- No more lifetime benefits
- 5% compound inflation very expensive
- Very few limited pay options
- Traditional Long Term care on its way out
Carriers
Fewer companies offering traditional long term care; harder to find as companies phase out. Mutual of Omaha, Mass Mutual.
Single Life Single Premium Life with Long Term Care Rider
What It Is
A single premium solution that provides a “one and done” premium payment option. Provides both a life insurance and long term care benefit for the insured.
Why It’s Good
- Guaranteed benefit. Guaranteed premium
- Many Companies have a refund of all or part of the premium
- Some build good cash value in excess of the single premium
- Simplified underwriting
Why It’s Bad
- Low Interest rates create need for larger deposits being required to create adequate long term care benefit
- Inflation riders are very expensive
- Limitation on return of premium. Some companies creating a vesting schedule or delay before refund can be obtained. (Tax implication of return of premium is 1099 on the value of LTC charges)
- Clients must have a deposit amount that provides an adequate benefit for long term care needs
- Not Partnership compliant
Carriers
Many companies offer including MoneyGuard (Lincoln), Total Living Coverage (Genworth), Premier care (PacLife), Asset Care (State Life), Mass Mutual
Life Insurance with Long Term Care Rider-Life Pay
What It Is
Provides both life insurance and long term care benefits for the insured. It is easily the fastest growing product in the long term care market.
Why It’s Good
- Many companies are now offering including John Hancock, Nationwide and Transamerica
- Benefit equal to 2% or 4% of death benefit per month for long term care (short and fat LTC)
- Guaranteed premium and guaranteed death benefit for some products, others guarantee LTC charges for a shorter period of time (John Hancock)
- Some offer return of premium (Transamerica) after vesting schedule
- Encourages younger ages to purchase long term care due to lower premiums and maximum return of premium
- Some plans are indemnity (Transamerica and Nationwide)
- Potential for cash value-IUL
Why It’s Bad
- Generally no inflation riders
- Requires the purchase of life insurance (this may be a positive though)
Carriers
Many companies are now offering including John Hancock, Nationwide, AXA, Transamerica
Life Insurance with Long Term Care Rider-Second to Die
What It Is
A Life Insurance product that provides a single pool or split pool for long term care. The death benefit is paid out on the second death.
Why It’s Good
- Single pay with additional annual premium for inflation rider
- Return of premium
- Whole life with good cash value
- Second to die life insurance results in lower internal cost of insurance
- For indemnity plans such as Nationwide the policy can be owned by a trust.
Why It’s Bad
- The client must purchase a larger face amount of coverage to insure adequate long term care benefits.
- Can get expensive at older ages
- The long term care benefit could eliminate the death benefit that may be needed for other purposes
Carriers
One America/State Life, Nationwide
Life insurance with Chronic Illness Riders
What It Is
Life Insurance with a catastrophic benefit for long term care. Often less expensive than a long term care rider it is very attractive for younger insureds.
Why It’s Good
- Triggers similar to that of long Term care Plans (2 of 6 ADL’s)
- Potential for cash value-Indexed UL
- Guaranteed Premium Guaranteed death benefit
- Premium on the back end-some chronic riders have no upfront premium. The premium is “paid” on the back end when only a portion of the premium can be accessed for long term care
Why It’s Bad
- CAREFUL – Riders require the client need permanent assistance with 2 of 6 activities of daily living with no chance of recovery
Carriers
Many companies offer – Protective, Lincoln, Prudential, Principal, American General, National Life of Vermont, North American
Annuity with Long Term Care
What It Is
An annuity with a multiples of the deposit available for long term care benefit. Perfect for clients with non-performing assets who can reposition the money to provide a long term care solution. The clients are not spending money.
Why It’s Good
- Lincoln unique in offering an annuity with limited access to long term care benefits in early years. Typically a lower amount for a longer period of years in the first 6 years then settles to a larger annual benefit for shorter years
- Guaranteed premium and benefit although not tax-free
- Simplified underwriting
Why It’s Bad
- The low interest rate environment along with the internal cost of insurance for the long term care rider results in the money growing very slowly
- Clients must have a large deposit to create adequate long term care benefits.
Carriers
Lincoln and One America
