United States

The long-term care insurance decision – a very complex one indeed

While unpleasant, a plan for long-term care key to a sound plan

INSIGHT ARTICLE  | 

No matter how uncertain the future is for the estate tax and the rest of the wealth transfer tax system, we can say with some certainty that the focus of many individuals who, age wise, are rounding third and heading home, is now the issues associated with the cost of health care in general and long-term care (LTC) in particular.

Conversations about LTC can be fair to partly difficult because, before the topic turns to funding that care with insurance, somebody has to buy into the notion that they will ever need that care in the first place. The statistics say 70 percent of us will need a whole lot more care than being put into a skilled nursing facility. So, with those kind of statistics in favor of needing some level of care for some period of time, we can consider the variety of ways to cover the risk and the considerations involving in making an informed decision to be or not to be insured.

Starting at the beginning, the threshold question is whether an individual is wealthy enough to self-insure. There are a number of rules of thumb about this, but it’s best to run the numbers, meaning do a long-term financial projection that builds in some big hits for LTC and see how things look. Maybe that will be the end of the conversation. Maybe not.

If the financial projection leaves the individual uncertain about his ability to safely weather a LTC storm, he might want to consider insurance. It’s common, of course, for people to assume that Medicare pays for that coverage. But that would not be a prudent assumption for planning purposes. That’s because Medicare covers the cost of a skilled nursing faculty for only 100 days and only if the individual goes there directly from a hospital stay. That might not be likely.

If Medicare is not necessarily a viable alternative to LTC insurance, what about individual LTC policies? This type of coverage generally gives the individual the most flexibility to design the coverage for the individual (and his spouse) in a particular fashion. It also gives the most bang for the buck, something the LTC specialists call “leverage” of the premium dollar. But many people have heard that individual LTC is expensive, pricing has not been a model of stability and, of course, one could pay premiums for 20 years and one day just walk in front of a golf cart and it’s over. He never needed the policy! Fortunately, there are alternatives to the individual policy, including annuities with LTC riders, life insurance policies with LTC riders and “hybrid life insurance/LTC policies”. These alternatives to the individual policy have one big thing going for them, you know you’ll get some benefit for your premium dollar.

We can’t tell anyone what to do or what to buy because the decision to purchase or not to purchase LTC insurance is a multi-faceted one indeed. However, we can suggest that an individual who is going to meet with an agent to discuss LTC insurance take these steps for a most productive meeting:

Before the meeting, send an email to the agent with these instructions:

  • Agent should assume that you acknowledge the risk of needing long-term care (LTC) and that the sole purpose of the meeting is to explore the alternatives for paying for the care.
    • Frankly, even if you haven’t quite arrived there intellectually, just say you did anyway. You’ll avoid devoting a big chunk of your time and attention span to the marketing push before you are able to get down to business.
  • Tell the agent to come prepared for a substantive, fact-based presentation of the types of products available today to fund LTC. Tell the agent to bring:
    • Carrier illustrations for each product under assumptions for your (and, if applicable, your spouse’s age, and any other variables that show the premium for various amounts and duration of benefits, riders, etc.
    • The most comprehensive version of the carrier’s client guide for each product, i.e., not just a glossy flyer
  • The presentation should cover:
    • An overview of the product (meaning how it works) and a walk through a representative illustration so you can “put the notes to the melody”
    • The extent of underwriting required when you apply
    • What services/expenses are covered and what are not
    • How much benefit the product provides, when the benefits start, for how long they are paid, inflation protection, etc.
      • How are the benefits taxed, if at all?
    • What “triggers” the benefits, i.e., what do you have to show to be eligible for benefits?
      • What is the claims process, i.e., what do you have to do to apply for benefits, both initially and subsequently? –
    • What could go wrong, i.e., how could the company deny a claim? What might be the grey areas?
    • A summary of the key substantive differences among the products and the practical metrics for determining which type of product is suitable for a given individual or couple
    • Then ask for the agent’s metrics for comparing similar types of policies
    • Moving from product to insurance carrier, the agent should show you:
      • The carrier’s ratings
      • The carrier’s history in the LTC business
        • History of any premium increases (including any pending now)
        • Product changes in the offing
        • Claims paying history

If the agent comes prepared to address these topics and provide these materials, the meeting should be a good start for an organized process that results in a well-formed decision.

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