Long Term Care Insurance - The Devil is in the Details

Friday, November 11, 2016

November is Long Term Care Awareness Month and it is a great time to consider solutions for one of the most pressing needs of baby boomers. This group (born between 1946 and 1964) is beginning to retire and are challenged with planning for future health care costs. While Medicare provides most retirees with health insurance, it pays only a fraction (if any) on long term care costs.

Long term care insurance policies are available to address this concern. Over the last 20 years, we have seen much volatility in products and carriers in this market. The “dust has settled” and the three basic product types are: Stand alone, Hybrid and Life Insurance with LTC riders.

Stand-alone products are like term life insurance. You pay your premium each year and if you have a claim, the benefits begin. The main advantage of this approach is the flexibility in design. Disadvantages include premium increases and there is no value if the benefit is never used.

Hybrids products (combination of life insurance and long term care) have become popular as they provide a life insurance benefit and a long term care benefit. They also provide a premium refund feature so there will always be a benefit to the insured or their family.

Life insurance with long-term care riders have also become increasingly popular. For those who have a life insurance need, it is an inexpensive way of providing LTC benefits. And like the Hybrid products, a benefit (either life insurance, LTC or a combination of both) will be paid.

The way LTC riders work in a life insurance policy is that if the insured needs home or nursing home care, the policy allows for an “advance” of the death benefit to be used for the care. These riders do not significantly increase the cost of the policy as the insurance company has to pay the benefit either way.

However, there is a big difference in the riders. Not all long term care riders are created equally. Some are called long term care (LTC) riders and some are called critical illness (CI) riders. What is the difference?

LTC riders are very similar to LTC insurance when it comes to triggering the benefit. If the insured needs assistance with 2 out of 6 activities of daily living (ADL’s) or suffers from cognitive impairment, the benefits begin. If the client gets better, the benefits stop and the unused benefit can be used later. With CI riders, benefits are only payable if the condition is expected to be terminal. This could severely impact the insured and their understanding of their policy. Recently, some companies have removed the “terminal” requirement in order to trigger benefits, so it is very important for the insured to understand what he/she is buying. Another concern with CI riders is the waiver of premium provisions and how they affect the policy after a claim.

Long term care insurance is very complicated, especially when dealing with combination products. At Greenberg, Wexler and Eig, we can educate you on options and assist you through the entire process. This material is provided for informational purposes and should not be construed as a recommendation, legal or tax advice. You should consult with a financial professional before making and decisions.
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