Traditional long-term care insurance isn’t your only option. There are many other policies that might do a better job for your long-term care.
Mary (name changed) came to me as a new client and transferred her mom’s investment account to my firm (she had power of attorney). It was her mother’s wish to leave Mary the money, but unfortunately, Mary’s mom had Alzheimer’s disease which devastated the account via long-term care expenses.
Had careful planning been done, Mary’s mom could have left a sizable account to her daughter. This is why long-term care planning is so very important: so financial obligations can be met and financial dreams can be achieved.
Traditional LTC Vs. Alternatives
Let’s look at traditional long-term care insurance first so we can compare it to the alternatives. You’ll have a daily maximum benefit (say, $150), a maximum benefit pool (say, $219,000), and a maximum coverage period (say, four years).
Note that if the benefit pool is used up or the coverage period lapses, coverage will expire. Either will affect you.
There are no death benefits with this type of insurance.
A premium for this kind of insurance might be $387.45 per month.
While traditional long-term care insurance does help cover long-term care expenses, it’s typically a use-or-lose situation.
“The premiums can fluctuate over time,” says Peter Huminski, President and Wealth Advisor at Thorium Wealth Management. “The insurance carrier may raise your rate on your long-term care policy as you get older.”
The good news is there are other options. Let’s take a look at the alternatives.
“The Legacy Optimizer” alternative is certainly one to consider. This is life insurance with a long-term care rider. Take a look at how it works . . . .
The rider is an add-on to your life insurance policy – similar to adding directory assistance to your smartphone plan (except it’s a whole lot more valuable).
There’s a death benefit with this option (say, $225,000). You’ll have a maximum daily benefit (say, $150) and a maximum benefit pool (again, $225,000).
The coverage period is 50 months – close to the traditional long-term care insurance mentioned above.
This universal whole life policy allows acceleration of the death benefit to pay for long-term care expenses and this strategy also provides a death benefit.
It’s probably going to be around $327.17 per month. Compare that to the long-term care insurance – a savings of just over $60 per month.
There’s another alternative called the “Income Plan with Long-Term Care Bonus.” This is an income annuity with a single premium. This works a differently than our previous two examples.
Say a couple puts a lump sum of money in at age 55. In this case, they might receive, for example, $2,300 per month after 10 years at the age of 65. If they were to go into long-term care, there is a doubler benefit that would pay them $4,600 per month.
Another nice benefit to this strategy is that the maximum period of coverage in our example here is 60 months – better than the alternatives thus far.
However, there is a large upfront cost: $350,000.
Keep in mind that this is only available for one payee regardless of the timeframe that’s used. Additionally, there’s a two-year waiting period after the 10-year waiting period before the doubler can be used.
Our last alternative is called the “Hybrid Strategy.” This one has a death benefit (say, $150,000), a maximum daily benefit (say, $150), and a maximum benefit pool (say, $150,000).
“A lot of people don’t like traditional LTC insurance because it is a ‘use-it-or-lose-it’ product,” says Christopher Hammond, financial advisor and author at RetirementPlanningMadeEasy.com. “But many of today’s hybrid policies, like life insurance that accelerates the death benefit for LTC needs, provide a benefit even if you never need long-term care.”
Yes, you’ll get a death benefit – able to be accelerated.
Coverage? Say, 33 months.
Premium? Say, $72,330.
The return of premium option is available on some of these policies, but it costs people their interest should it be utilized.
This is one of the more affordable lump-sum policies, which may help folks hang onto much of their retirement account.
When buying this kind of policy, look for a return of premium option, a spousal benefit, and a lifetime rider option.
These long-term care insurance alternatives are worthwhile considerations, but sometimes keeping things simple is better. “The ideal solution for almost everyone is two: (1) have a plain vanilla life insurance policy and (2) have a plain vanilla long-term care policy in place,” says Tony Liddle, CEO and Financial Advisor at Sark Investments.
Take your time, do your homework, and pick an option that makes the most sense to you.