Stephen Dybwad

Stephen J. Dybwad | Highly Individualized Financial Guidance

Long Term Care Insurance and Increasing Premiums

Long Term Care Insurance Premiums Increase Continue With No End In Sight

"A couple in their mid-50s purchasing new long-term care insurance coverage can expect to pay just over $3,000 for a potential combined benefit of over $770,000 in coverage should they begin needing care at age 85."– American Association for Long Term Care Insurance.

Purchasing long-term care (LTC) policy, designed to pay for a host of services that are not covered by regular insurance, is a great way to protect your savings from the impact of a catastrophic or chronic medical issue that isn't covered by health insurance.

Unfortunately, many Americans don't take the advice of their financial planners and avoid purchasing LTC insurance. They either deny they will ever need assistance later in life, or they've heard horror stories about sudden and dramatic increases in the cost of this insurance.

According to the American Association for Long Term Care Insurance's price index, the cost of long-term care insurance increased only slightly in 2019 compared to the previous year. However, this good news comes on the heels of a decade in which consumers saw premium spikes of 40, 50, or even 60%, years after many of them bought their policies.

With more hikes on their way, is there anything consumers can do to lower their costs for long-term care insurance? Fortunately, you can and should make long-term care insurance more affordable with a bit of planning.

Here are a few strategies you can use when planning for long term care that could potentially save you thousands of dollars:

1. Choose a different growth option. You might consider choosing a 2% inflation growth option if your carrier allows it instead of the typical 3%. This will save you up to 20% on your annual premium in many cases.

2. Shared care. Some insurers have a feature known as the "shared care option." Shared care allows a married couple to take out separate plans that have an option allowing each of them to become a "rider" on their partner's plan. With this option, if a person needing care runs out of benefits on their policy, they would be able to access funds from their significant other's policy. Companies offering these types of plans often give you a choice of either taking from each other's plans as needed or, in some cases, from a separately created pool of money from which either spouse may draw. Again, it would help if you spoke with a qualified long-term care specialist to discover which companies offer these options, how much money you could save using shared care options, and any potential downsides.

3. Save more money. With a bit of planning, you might be able to pay for your long-term care out of pocket. This will help you avoid the risk of paying for insurance you may never use. This is a bit risky, as just a few years (or even a few months in some states) of care could put a huge hole in your savings. As costs mount, you could find yourself running out of money or dipping into funds set aside for your heirs.

4. Living benefits. Also called "accelerated death benefits," this feature is available on the majority of "permanent" life insurance policies, such as whole life, and occasionally on term policies. Using these accelerated death benefits" allows you to take a portion of the life insurance benefit and use it for designated illnesses and terminal conditions. The types of medical issues that trigger living benefits vary by policy, so be sure to read your contract carefully. Another downside is that using accelerated benefits will reduce your beneficiaries' death benefits.

5. Life Settlements. Many people aren't aware that life insurance is considered an asset. As such, you may sell your policy through a process known as a life settlement. The upside of life settlements is that most of the time, you will receive a significantly greater amount of money than you would if you merely surrendered your policy. However, you should know that selling your policy comes with some risks. For one thing, proceeds might be taxable, and when you sell your policy, your beneficiaries will no longer receive a death benefit. Also, it's tough to tell if the settlement company is giving you the best price.

6. Use an annuity. Annuities can be a great tool in your long-term care planning. You could, for example, purchase an immediate annuity to provide an income stream that would pay for long-term care. With this type of annuity, you pay one lump sum to secure a guaranteed income stream for either a certain period or your lifetime. The income is based on how much money you put in, your health, age, and gender. The obvious downsides to this kind of annuity are that you will need to put in a large sum of money at once (often $50,000 or more), and the income generated may not be enough to pay for long-term care needs. Another way to use annuities is to purchase a so-called "hybrid" annuity, which offers a long-term care rider designed to help you offset long-term care costs. With a hybrid, you are guaranteed to receive a minimum return of your cash value even if you don't use the long-term care portion.

The important takeaway from all of this is that it is critical to plan, right now, for the day when you will need assistance with the activities of daily living. Designing a blueprint for you and your spouse's long-term care needs should involve the services of a qualified LTC planner who can help you find affordable plans or offer viable alternatives.

Steve Dybwad picture

Stephen Dybwad

Stephen J. Dybwad | Highly Individualized Financial Guidance

Cincinnati, OH, Louisville, KY, Indianapolis and Madison, IN,

(800) 959-3526

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