Who Needs Long Term Care Life Insurance?

Long term life insurance might just be the perfect combination of coverages to tie all of your loose ends but how can you know for sure?  Policies such as these are becoming more and more popular now that insurance carriers have recognized the often overlapping needs of having both types of protection tied together.  It’s defined as a life insurance policy with long term care benefits added to it. Long term care insurance, along with life insurance are both coverages that are on the short list of protections that most financial advisors recommend.  Whether you should combine the two with a single policy is, much like all things specific to your situation. Just because you need both doesn’t necessarily mean that they should be tied to each other.

What is Long Term Care Insurance?

Long term care insurance is a policy that will reimburse you daily for services that assist with daily living activities such as eating, dressing, transferring, bathing ect.  The important thing to understand is that according to The US Department of Health and Human Services most Americans turning 65 or older will need LTC services at some point during their lives.  We’ll get into some more of the advantages and disadvantages of this type of coverage in a bit but for now let’s talk about the ways you can purchase long term care.

Stand Alone Coverage

Stand alone LTC is available to those who have no need for any services to accompany it.  Included in stand alone coverage are a number of benefits for services like skilled nursing care which is similar to a marriage between physical therapy and hospitalization.  If you have medicare, it will pay for your first 20 days of skilled nursing care but there is a $164 copayment per day for days 21-100 which your LTC policy can cover. Also typically covered by an LTC policy is at home care in which a licensed caretaker could come to your home to assist in activities.  Another service offered would be assisted living cost like an assisted living community or a nursing home. According to Forbes the median price of a semi-private room in a nursing home in 2017 was $85,775 and $97,455 for a private room.  Adjusting for a very conservative 3% inflation rate over the next 20 years that semi-private room would cost $154,919 and a private room would be $181,295.

Annuity with a LTC rider

Annuities are a great way for retirees use their retirement money to create a dependable and predictable income for themselves.  It stands to reason that if you’re looking for an annuity and have not yet secured an LTC policy this is a great way of combining the two.  When you’re purchasing your annuity you can have a certain multiplier of the amount of LTC coverage you want added to it. Say, $100,000 in annuity may buy you 200% LTC benefits and if you add inflation protection it could go up to 300%.  

The downside is that with this type of coverage the price you pay is heavily weighted on the current interest rates which are pretty low already.  Chances are that when interests change they’re going up.

Life Insurance with a LTC rider

LTC life insurance or sometimes referred to as a hybrid policy is a permanent insurance policy that includes benefits for long term care as well.  With the hybrid policy you’re essentially buying an insurance policy where the death benefit acts as a cash pool where you can access the money when you qualify by accessing funds from your cash pool to pay for the necessary services.  This stockpile of funds can be used to reimburse your long term care expenses protecting your existing retirement funds. The best feature of using a policy such as this is that if you never need to use the fund the full death benefit is paid to your designated beneficiary.  One of the biggest complaints when purchasing a stand alone LTC policy is that if you never need to use the benefits all of the money you paid into it over the years is gone unused. No benefit at all. This guarantees that you see benefit out of your investment one way or another.

Among the advantages of receiving your LTC this way:

• Medical qualification for one of these is a bit more lenient than for a stand alone policy.  
• The premiums will stay level throughout the life of the policy in contrast with a stand alone policy which can see increases over time to keep up with inflation (although you can purchase inflation protection).
• Often times you can get your money back with these policies on a case by case basis.  Many carriers will allow you to recoup some of your premiums if you opt to cancel the policy.

Disadvantages Life Ins. with an LTC rider:

• It’s expensive.  Talk to your broker about costs and be realistic about what kind of a commitment you’re able to make.  
• It’s only available for those taking out a permanent policy meaning a whole life or universal life policy.  If you just want term coverage there’s an alternative I’ll cover next
• If you’ve got a set amount of death benefit your beneficiary needs to have no matter what this may not be a good fit for you as the LTC will erode their cash pool.

For those that are interested in benefits that assist in LTC but only want term coverage, there is an alternative.  Many term policies now offer riders with living benefits where the owner of the policy can access a part of the death benefit for themselves while they are alive to assist in paying for medical and home health care services.  Some companies like Prudential, Ameritas, and Transamerica will include these riders at no additional cost while others will have it for purchase. Typically they will allow you to withdraw funds to pay for medical expenses associated with a terminal illness.  There are a select few that will have more robust offerings that pay for things such as stroke, heart attack and coma.

If you choose a term policy with living benefits the biggest shortcoming is that your ability to access the living benefit is limited to whether your ailment falls into one of their categories so make sure you’re choosing the policy with the most options.  The other downside is that since it is a term policy the coverage will not last forever unless you choose to convert it later in life.

Who needs Long Term Life Insurance?

• Women typically need this coverage a bit more than men just because they tend to outlive men by about 5 years.  Not to say that men don’t need and in fact if you’re a man thinking of taking LTC you’d might as well choose a policy with guaranteed benefits so that when your wife outlives you she can benefit from the the policy rather than it going to waste.
• Those with mobility issues or a family history of mental illness or stroke.  The US Census Bureau reports that two thirds of senior citizens that are disabled have trouble walking or climbing.  A family history of debilitating diseases is another reason to consider protecting yourself with a policy of this type.
• Those that don’t want their retirement savings to be eroded by a disability.  If you’re looking to take out a life insurance policy and you’re also concerned that your hard earned nest egg could get swallowed up by medical expenses this is probably for you.
• The biggest indicator of people who need this type of coverage are those who have a need for both life insurance and long term care.  This is of course the most obvious answer but it couldn’t be more true. Rather than taking out each of the coverages separately you can keep your risk down and save money by combining the two.

Talk to your financial advisor of qualified insurance broker for help considering whether this would be a good fit.  Pricing will vary by health and age as well as a number of other factors. As with all things, it’s less expensive to account for it ahead of time than it is to deal with it as it comes.