Jul 29, 2020
T.J. McCance, AAI, MBA
Traditional Long-Term Care (LTC) Insurance has received a great deal of attention, particularly over the past several years. The public perception of these policies seems to be anything but positive for a number of reasons, some based on fact and others just a misconception or misunderstanding of what the product is designed to do. I’m a firm believer that every person entering their retirement years (or before) should have an extended care plan and many times that could include traditional policies; but what if the benefits of a traditional policy weren’t enough to overcome the disadvantages?
Alternative solutions to traditional LTC policies such as life insurance with a Long-Term Care Rider and other Hybrid LTC Plans have grown in popularity for a number of reasons. One of the major differences between traditional policies and alternatives in the market is the advantage of a death benefit to a named beneficiary if the Long-Term Care benefit is not used. This solves the, “use it or lose it” design of traditional policies.
Another concern many have about traditional policies is centered on the uncertainty of future rate increases. There is no way of knowing if, or when, a premium increase would be approved. This uncertainty is solved by many non-traditional options.
Here are a few additional reasons why alternative insurance products are growing in popularity:
· Premiums are fixed and can be guaranteed
· Ability to fully fund the policy within a set number of years ranging from 1 to 10
· Policies provide a death benefit if the Long-Term Care benefit is not used
· Some contracts can be designed to provide 100% return of premium
· Many Hybrid LTC plans require only a phone interview and no physical examination
· Proper contract design can allow leverage of idle cash for qualified LTC expenses
These alternative insurance products should rarely, if ever, replace an existing LTC policy. It is unlikely the premium commitment for a new policy is lower or would provide comparable coverage for the same cost as the existing policy. If an existing policy is already in place, these alternative solutions can be purchased to enhance current coverage above and beyond what is currently in force. It is also important to note that all policies offering true qualified Long-Term Care benefits, whether a traditional LTC policy or an alternative, are medically underwritten and require approval through either a phone interview or an actual physical examination.
The risk of having a significant senior event is real and planning ahead could potentially save a family from conflict, protect retirement income, and allow for proper care to be in place before it is needed. Failing to plan is planning to fail so it is always best to explore all options before deciding what solution fits your objective. Not all solutions to this risk are the same so working with a trusted advisor who has knowledge in the area of Extended Care Planning is critical to customizing a plan that will protect you and your family.
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