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The other day I was talking with a client couple who was trying to decide if they should purchase long-term care insurance (LTC). Since Glassman Wealth Services doesn’t sell insurance or make a commission on our insurance recommendations, our role is to educate clients about their options prior to engaging an insurance professional.
We talked through the various benefits and features of long-term care policies with the goal of understanding how they could structure a policy that is affordable and meets their needs. This information helped them so much that they suggested I write this article in an effort to educate others about the cost of long-term care.
This is an important conversation that I have with many clients and an important decision as it could be the difference between them aging comfortably or not. However, the decision may come down to cost – how much long-term care coverage could they afford?
Obviously, an applicant’s age and medical history have the biggest impact on premiums. Long-term care pricing is constantly changing and differs between the carriers. The industry is seeing a movement away from unisex pricing towards gender specific pricing, which leaves the ladies paying a higher premium. Since we have no immediate control over these factors, let’s focus on the things we can control which are the features of a policy.
Common features in long-term care policies:
LTC benefits are normally triggered by the inability to perform two out of six ADLs (Activities of Daily Living) or cognitive impairment. The most common features available in long-term care policies and the ones that tend to be part of new policies as a standard practice today are:
- 100% home care and facility care benefits
- Home modification and caregiver training benefits
- Waiver of premium
Standard benefits that impact cost:
Beyond the standard benefits, there are features we can adjust that can really impact pricing. These include:
- The length of the elimination (waiting) period
- Inflation protection that increases benefits at a stated rate over time
- A rider that returns the premiums paid in the event benefits aren’t used
- A non-forfeiture benefit that ensures the policy remains in force, except for non-payment
- A restoration of benefits rider that refills the benefits pool if there is a long break in claims
The inflation protection feature impacts price the most, but could be considered one of the most important features. The return of premium rider is also a very expensive option.
Designing a cost-effective long-term care policy:
If I were going to design a policy, it would include:
- A 90 day elimination period
- 3% compound inflation protection
- The non-forfeiture benefit
However, individual preferences and carrier prices vary so it is worth your time to request multiple quotes with varying features.
Being educated clients, they voiced concerns about the premium increases they have been reading about in the papers. While I can’t think of a single insurance company that hasn’t had a rate increase, certain companies have been known to do so more often. I encouraged my clients to ask their insurance professionals about each carriers’ premium increase history so they are aware of the likelihood that they would experience one in near future.
Coordination of long-term care:
Before my clients left to talk to their insurance agent, I reminded them that one of the most under-rated benefits with long-term care policies is the coordination of care benefit. Long-term-care companies employ claims administrators who work with their clients to find a good choice of caregivers and to create a plan of care. This really helps ease the burden of care coordination and management, and since this service is not easily available outside of a long-term care policy, it can be difficult to place a value on it. For anyone who has been the primary caretaker of a loved one, you know that competent and caring help can be priceless.
Have you considered purchasing a long-term care policy? What benefits do you consider to be most important?