Long-term care planning is an important component of a financial plan. We recommend that our clients start seriously thinking about this piece of their financial plan once they reach age 50. Many choose to purchase long-term care insurance to help shift some of the risk of these costs to an insurance company. However, the long-term care insurance marketplace has changed dramatically over the last two years. Below are the four key changes:
1) No Lifetime Benefits – Insurance companies used to issue policies that would pay a certain daily or monthly benefit amount with no limit on the length of time the benefit would pay. The benefit term was effectively the lifetime of the insured. Insurance companies have stopped offering lifetime benefit policies. The longest benefit terms being offered to individuals now are six years.
2) No More Limited Pay Options – When purchasing long-term care policies in the past, individuals had the option to pay a higher premium and effectively pay the policy up over a period of years. A 10-year payment plan was common, and offered an individual the option of making higher premium payments initially, but knowing they would have the policy completely paid after a certain number of payments. Insurance companies are no longer offering set term premium plans. Long-term care insurance sold today requires annual premium payments indefinitely.
3) Gender-Based Rates – Most insurance companies have moved to gender-based rates this year. Industry observers expect all carriers to follow suit soon. The rates for females have increased substantially in many cases, since women tend to require care at a higher rate and for longer periods than men.
4) Hybrid Products – Increasing costs for traditional long-term care insurance have led insurers to start creating “hybrid products” that have elements of both life insurance and long-term care insurance. These products can be great alternatives for some individuals, especially if they have substantial assets they are willing to earmark for their potential long-term care needs by purchasing an insurance product. An example of one of these hybrid products is Lincoln Life’s Moneyguard Reserve Plus product.
The long-term care insurance market continues to evolve as it responds to industry changes and claims on existing policies. We expect changes to continue in this area. In the face of these changes, long-term care planning and insurance continues to be an important part of an individual’s financial plan.