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Long-Term Care Insurance Update 

Long-term care is on people’s minds more and more these days. Most baby boomers, now between their 50s and their 70s, know families with someone who needs personal care. Directly knowing a friend or family whose financial life is upended by the bone crushing expense of long-term care is motivating boomers who have Long-Term Care Insurance (LTCi) to review their policies. Many baby boomers who haven’t acquired LTCi are reconsidering and looking for updated information. Fortunately, there is some good news for both groups.

Kudos if You Already Own LTCi

You made a smart decision if you acquired LTCi more than 10 years ago. This is especially true if your policy provides a significant reserve of money to cover care at home or in assisted or skilled nursing settings for an affordable premium. Because you got on board with LTCi early, the challenge that you may experience in the near future could be a premium increase.

Many LTCi companies recently asked the Massachusetts Insurance Department for permission to increase premiums on some LTCi policies, mostly those issued more than 10 years ago. Most of those premium increases have been approved.  Policyholders will usually be notified by the LTCi company 60 days prior to the premium increase.  Communication from the LTCi company will include a variety of options for policy owners willing to decrease their coverage to reduce the amount of the premium increase. Even if your policy’s premium increases, it will be considerably less than what a similar policy would cost you today.  If you acquired LTCi in the last several years, you are less likely to face a premium increase now because insurance companies offering LTCi learned to price their offerings more accurately, meaning higher rates than in the past.

Stand Alone and Hybrid LTCi Is Still Affordable for Many Boomers

If your age is between 50 and 70-plus, you’ve likely seen an illness or injury derail a friend’s or couple’s retirement dream of living in their own home. If you don’t own LTCi and realize you don’t have a sound plan for how to be cared for in your own home if you or your spouse needs care, there is still time to consider LTCi. Most financial professionals qualified to provide LTCi advice will educate you about what is available at no cost.

LTCi premiums are higher than they were years ago. That should not deter you from spending time to understand whether there is an LTCi policy that makes sense for you. Higher premiums underscore the importance of designing a policy so that it provides benefits at a cost you can afford now and for the rest of your life. The good news about the higher LTCi premiums is that they are more realistic and LTCi companies are likely to request fewer, if any, increases in the future.

New Hybrid LTCi policies offer some additional good news. Hybrid LTCi policies combine one kind of insurance with another kind of insurance.  In most cases, LTCi is linked with life insurance. Though hybrid policies have been available for years, they have become increasingly popular because of three policy features that can include: (1) a guarantee that premiums will never increase; (2) the ability to get back a significant portion of the premium you’ve paid if you have not used the long-term care benefit; and (3) the hybrid policy guarantees* that if you die, your beneficiary will receive a death benefit in an amount that correlates with what benefits have not been used.

Some Examples of Standard and Hybrid Policy Benefit Amounts and Premiums

Table 1, below, gives you an idea of the approximate premiums for three levels of stand alone, traditional LTCi, for illustrative purposes only. To know how this applies to you, an application that includes a health evaluation is necessary:

* Guarantees extend to the claims-paying ability of the issuer

Table 1
Level A
$4,500 Monthly Benefit

2 Year Benefit Period

$108,000 Pool of Money

3% Compound Inflation

90 Calendar Day Deductible

Female

Monthly Premium

Male

Monthly Premium

Age 50 applying with a Partner/Spouse $125 $85
Age 60 applying with a Partner/Spouse $166 $111
Age 70 applying with a Partner/Spouse $268 $192
Level B
$6,000 Monthly Benefit

3 Year Benefit Period

$216,000 Pool of Money

3% Compound Inflation

90 Calendar Day Deductible

Female

Monthly Premium

Male

Monthly Premium

Age 50 applying with a Partner/Spouse $217 $136
Age 60 applying with a Partner/Spouse $286 $175
Age 70 applying with a Partner/Spouse $446 $287
Level C
$7,500 Monthly Benefit

5 Year Benefit Period

$450,000 Pool of Money

3% Compound Inflation

90 Calendar Day Deductible

Female

Monthly Premium

Male

Monthly Premium

Age 50 applying with a Partner/Spouse $379 $223
Age 60 applying with a Partner/Spouse $500 $280
Age 70 applying with a Partner/Spouse $770 $457

Level A shows the monthly premium of a policy that provides a benefit of up to $4,500 and a total reserve (pool of money) amount of $108,000. Although this is described as lasting two years (24 months), this is only for the purpose of describing that $4,500 for 24 months is $108,000. In fact, if you spend less than $4,500 in any month, the unspent money is still available until the entire $108,000 is used.*This is a hypothetical example and is for illustrative purposes only

  • Level A shows that a married couple, both aged 60, would pay $166 monthly for the woman and $111 monthly for the man and each would have $108,000 of total benefits.
  • Level B shows the monthly premium of a policy that provides a benefit of up to $6,000 monthly and a total reserve of $216,000. A married couple, man age 70 and woman age 60, would pay $287 monthly for the man and $286 monthly for the woman, for a total of $216,000 each of benefits.
  • Level C shows the monthly premium of a policy with a benefit of up to $7,500 monthly and a total reserve of $450,000. A married couple, both 60, would pay $500 monthly for the woman, $280 monthly for the man, for $450,000 each of benefits.
  • Premiums for single persons are about 40% higher than those shown in Table 1.

Hybrid policies require significant premiums to achieve the combined life and LTCi benefits and features described above. For example, a single man, paying a one-time premium of $50,000 might expect a monthly benefit of up to $2,942 monthly and a total reserve of $211,860, and the amounts would double for a premium of $100,000. Some companies permit the premium to be paid in annual installments from 2 to 10 years, though for an increased amount. The advantages of paying this significant premium include a guarantee that once the first premium is paid, there will not be any increase.

A married couple, both age 65, each purchasing a hybrid policy with a premium of $50,000 each might expect these approximate benefits: up to $4,199 monthly with a total reserve of $302,328 for the woman and $4,737 monthly and a total reserve of $341,064 for the man.

Conclusion

 Financial upheaval and family heartache are inevitable when a family member needs long-term care and there is no plan in place to cover the costs.  Planning for long-term care does not always require LTCi, nor are such insurance policies affordable for everyone. If you are considering what will happen if you need care — especially if your hope is to continue living in your own home for as long as possible, LTCi is worth considering. As always, when you make decision about complex issues involving finances, consult your trusted advisor.

Samuel Financial LLC is located at 858 Washington Street, Suite 202, Dedham, MA 02026 and can be reached at 781.461.6886.  Securities and advisory services offered through Commonwealth Financial Network, member FINRA/SIPC, a registered investment advisor. Fixed insurance products and services offered through CES Insurance Agency.