Long Term Care Insurance – 3 Product Choices – 3 Pools of Money
/Long term care (LTC) insurance policies provide a “pool of money” to help you pay for the cost of long term care services. Benefits are usually triggered when you need help with two or more of the “Activities of Daily Living” or have a cognitive impairment. With nursing home costs hovering around $80,000-$150,000 annually ($6,666-$12,500 per month) for a semi-private or private nursing home, LTC insurance can help mitigate this cost so your retirement plan remains intact.
This pool of money is offered through three major types of LTC products.
1. Traditional (or stand alone) LTC policy
2. Hybrid annuity insurance policy – an annuity with LTC rider
3. Hybrid life insurance policy - life insurance with LTC rider or accelerated death benefit
When you purchase a traditional LTC policy, you will select the range of care options and benefits to be covered, as well as the daily or monthly maximum benefit and the benefit pool amount. Care options may include home health care, adult day care, assisted living and nursing home. This policy is the most straightforward when it comes to price and coverage. It’s also the most expensive. Once you sign up, premiums are due for the rest of your life, so make sure you can afford it. Some people call this type of policy a ‘use-it or lose-it” policy since there is no cash value if the coverage goes unused.
The hybrid annuity and/or hybrid life insurance policies generally only offer a pool of money to use toward LTC expenses. They don’t consider the range of care options or benefits to be covered. Instead, it’s up to you to decide what type of care you can afford based on the monthly checks the insurance company sends you, which is dependent on the pool of money in your hybrid policy. The good news is that hybrid policies do offer a cash-value settlement. These policies can vary greatly in price and come with many caveats. So much so that sometimes it’s difficult to understand exactly how much you’ll have to use toward LTC or how the insurance company determines the cash value amount.
Purchasing a hybrid annuity insurance policy (and later triggering the LTC benefits) can provide you with a higher monthly check than the annuity check you would have received. In fact, your monthly check may be double or even triple the amount. Unfortunately, this amount may not be sufficient to cover all of your LTC expenses.
Purchasing a hybrid life insurance policy that has an ‘accelerated death benefit’ or LTC rider can provide you with a monthly check based on a percentage of your death benefit. Some insurance companies cap the percentage of your death benefits that can be used toward LTC, resulting in insufficient funds to cover your LTC expenses. Keep in mind that your life insurance death benefit will be reduced accordingly once your LTC benefits begin.
With that being said, everyone should consider LTC coverage for their future. To best understand the policy that is right for you, set an appointment with a knowledgeable independent agent who can explain which policy best fits your budget and long term care needs.
