Long-Term Care Insurance

Long-Term Care Insurance

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Ordering the Combo: Life Insurance with Long-Term Care Benefits

May 28, 2019
Insurance, Life Insurance
Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own.
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Ordering the Combo: Life Insurance with Long-Term Care Benefits

May 28, 2019
Insurance, Life Insurance

The biggest risk of buying long-term care insurance is that you might spend tens of thousands of dollars on something you won’t use. Policies pay for nursing homes, assisted living or home health care — but what if you never need these services? New types of policies combine long-term care insurance with permanent life insurance, such as whole or universal life.

If you want both types of coverage and can front the money, these hybrid options are worth a look.

How combination policies work

Combination long-term care/life insurance policies pay for long-term care that regular health insurance or Medicare won’t cover. And if you don’t max out the long-term care benefits, the insurer pays a benefit to your beneficiary upon your death.

Also called linked or asset-based policies, combination products work this way:

  • Depending on the policy, you pay one lump-sum premium or a few large annual premiums — typically for fewer than 10 years, according to LIMRA, an industry research and consulting group. The average cost of a single-premium combination policy is $75,000, according to the American Association of Long-Term Care Insurance.
  • The policy provides a pot of money for long-term care that’s equal to several times your premium payments.
  • The policy’s death benefit will be reduced — which means less money for your beneficiary — according to how much of the long-term care benefit you use. Some policies guarantee a small percentage of the full death benefit, such as 10%, even if you use all the money allocated for long-term care.
  • You’ll need to supply medical records and take a medical exam to qualify for some combination policies. Others offer “simplified underwriting,” which means you may only  need to answer health questions over the phone. If you’re healthy, you’ll pay less for coverage if you buy a policy that requires both an exam and submission of medical records.

Combination policies differ, but here’s a hypothetical example for a MoneyGuard II policy from Lincoln Financial: A 60-year-old female nonsmoker pays a single $100,000 premium for up to $453,783 in long-term care benefits, or almost 4.5 times the premium. Long-term care benefits could pay out for up to six years, at up to $6,303 per month. If she never used the policy for long-term care, it would pay a death benefit of $151,261 to her beneficiary. And after year five, she could get her $100,000 back if she didn’t want the policy any longer and hadn’t used any of the long-term care benefits.

Sales of combination long-term care/life insurance policies have taken off. More than 260,000 combination policies were sold in 2017, up from 15,000 policies sold in 2007, according to LIMRA.

The appeal of combination policies

Aside from the fact that you get something for your premium no matter what, the biggest advantages of combination policies are:

  • The policy can be a good investment if you otherwise would have spent the money or kept it in a low-yield account.
  • You won’t have premium hikes when you pay with a lump sum, and a policy with a limited number of payments might even guarantee the premiums will stay the same. Some owners of traditional long-term care insurance policies have seen their premiums double within the past several years as care costs have surpassed insurance companies’ projections. And with historically low interest rates, insurers haven’t made enough investment income off of premiums to pay claims.
  • There’s a money-back guarantee with some combination policies. The insurance company will return your premium if you decide you don’t want the policy after a certain period of time, such as five years. Before then, you can get a percentage of the premium back.

The downsides

A combination long-term care/life insurance policy is probably not for you if:

  • You only need life insurance. In that case, you should buy a regular term or permanent life insurance policy. Term life, designed to cover the years that your family depends on your income, is sufficient for most people. Permanent life insurance covers you for your whole life.
  • You don’t want permanent life insurance. If you only need temporary coverage, shop for term life insurance, which is much cheaper.
  • You don’t have $75,000 (or more) burning a hole in your pocket. The American Association for Long Term Care Insurance says that combination policies are best for people who have “lazy money” sitting in CDs or money market accounts.

Get advice before you decide

If you do decide on a combination policy, compare quotes from multiple insurers, and check the insurance companies’ financial strength ratings before you buy. It only takes a few minutes to look them up on the websites of independent rating firms, such as A.M. Best, Fitch Ratings, Moody’s Investor Services or Standard & Poor’s Ratings Services.  (You might have to register on some sites to access ratings, but registration is free.) The ratings agencies issue grades for insurance companies, and each agency has its own scale.

Combination policies are complex products, and their costs and benefits vary. Before you buy, talk with a financial advisor who understands these products and can compare them to stand-alone long-term care and life insurance options.

Barbara Marquand is a staff writer at NerdWallet, a personal finance website. Email: [email protected]. Twitter: @barbaramarquand.


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Long-Term Care Insurance

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5 Insider Tips for Finding Affordable Long-Term Care Insurance

Sept. 26, 2016
Insurance, Life Insurance
Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own.
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5 Insider Tips for Finding Affordable Long-Term Care Insurance

Sept. 26, 2016
Insurance, Life Insurance

Years from now many baby boomers will need help with the daily stuff of life, like dressing, bathing, eating or remembering to take medication.

Regular health insurance, including Medicare, doesn’t pay for help with these “custodial care” tasks, except in limited circumstances. Long-term care insurance does.

Yet faced with the coverage costs, many long-term care insurance shoppers get sticker shock and give up. Here’s how to keep the price affordable.

1. Buy sooner rather than later

“The key to long-term care insurance is to apply early while it’s inexpensive,” says Kevin M. Lynch, assistant professor of insurance at the American College of Financial Services in Bryn Mawr, Pennsylvania.

You can buy long-term care insurance up to age 75 from most companies, but you’ll pay more at older ages and if you have health conditions.

Among 65-year-old applicants, 28% will be denied because of their health, Lynch says.

The ideal age to start shopping? “I think 50 is the magic number,” says Deb Newman, president of Newman Long Term Care, an independent insurance agency in Richfield, Minnesota.

Don’t give up if you’ve passed the half-century mark. Apply at least 60 days before your next birthday to get a price based on your current age, advises Jesse Slome, executive director of the American Association of Long-Term Care Insurance.

2. Work with an independent agent

Prices vary by insurer for the same amount of coverage. Work with an agent who can sell — not just quote — policies from different carriers, Slome says. A good agent will know which companies will likely accept you for coverage based on your health and give you the lowest price.

Get price comparisons even if you’re offered the opportunity to buy long-term care insurance through a group, such as your employer. If you’re healthy, you might find a better deal on your own.

3. Start with a budget

Decide what you’re comfortable spending for coverage, and ask the insurance agent for quotes that fit your budget, advises Brian Gordon, president of Maga Ltd., an independent long-term care insurance agency in Riverwoods, Illinois. Gordon discourages people from buying a policy if they’ll struggle to pay the premium.

Work with a financial advisor to review other options if you can’t qualify or pay for long-term care insurance. Medicaid, the federal and state insurance program for people with low incomes, will pay for nursing home care, but to qualify, you have to spend down most of your money first.

4. Plan realistically

Among 65-year-old Americans, 52% eventually will develop a disability and will need long-term care services, according to a study revised in 2016 by the Urban Institute and the U.S. Department of Health and Human Services. On average, a 65-year-old today will eventually incur $138,000 of long-term care costs.

But few folks want to think about that.

“First of all what pops into people’s minds is the dreaded nursing home,” Newman says. Yet most long-term care is provided at home, according to the U.S. Department of Health and Human Services.

Newman encourages clients to buy enough coverage to pay for home health care for a few years. The average annual cost of a full-time home health aide is $50,336, compared with $89,297 for a semi-private nursing home room, according to the Genworth 2018 Cost of Care Survey.

Most long-term care insurance policies reimburse you for care at home or in assisted living or a nursing home. So if you buy enough to pay for home health care but instead go to a nursing home, the policy will pay at least some of the nursing home costs.

Look at costs of care in your area to estimate how much coverage to buy, Lynch advises.

5. Go for a simple vs. souped-up policy

Ask for quotes for good, better and best coverage from each company to see costs at different levels, Slome says.

Avoid adding features, called riders, that you don’t need. “Keep it a good, simple, long-term care policy without all the bells and whistles,” Gordon says.

An example is a “restoration of benefits” rider: If you need long-term care but then get better, the benefits you used are restored for a later date. But Gordon says once people start to need long-term care, they usually continue to need it.

An inflation protection rider allows your benefits to grow to keep up with inflation. Reducing the inflation protection, from, say, 3% to 1% will drop the policy price. If you’re older, say 70 instead of 55, you may be able to get by with less inflation protection, Lynch says.

A final thought

Avoid an all-or-nothing approach when buying long-term care insurance.

“Sometimes people look to insuring 100% of the cost of the care,” Gordon says. Instead, think about the costs you can handle and what you want to insure. “Don’t buy more than what you need.”

Barbara Marquand is a staff writer at NerdWallet, a personal finance website. Email: [email protected]. Twitter: @barbaramarquand.

This article was written by NerdWallet and was originally published by USA Today. It was updated on May 28, 2019.