The first thought that comes to my mind when I see the word “insurance” is money, dollars going out and potentially no benefit coming back if it’s not used. It doesn’t matter if the policy is for your car, home, business or life; the premiums today are expensive and rapidly increasing. The truth, though, is that none of us can live or should live without it.
The labor of mind and body that created the assets you own needs to be protected from unseen hazards. Your auto must be protected from others on the road and even yourself should you have a bad day behind the wheel. Your home, fire, theft, or even the elements, can, in the blink of an eye, wipe out one of your largest and most costly possessions. Living longer increases the potential that your retirement savings may go to an assisted living or full nursing care facility instead of providing for your spouse or leaving a legacy to offspring or charities.
Long-Term Care came into existence in the late seventies. These policies were sold as nursing home insurance and primarily covered care in skilled nursing facilities. They were expensive and had limited benefits. Most were typically purchased by individuals who had significant assets to protect.
In the nineties and early two thousand’s, long-term care insurance (LTCI) began to evolve and offer a wider range of options. Coverages offered a variety of settings, including assisted living and home-based care. And for the first time, products had options for inflation protection riders in an attempt to manage the rising cost of care.
As the years have passed, several factors, including higher than expected claims and lower-than-expected interest rates, have pushed premiums higher, forcing some underwriters to leave the market entirely.
Currently, some states have introduced Partnership Programs designed to encourage individuals to consider purchasing a qualifying LTCI policy as a means to protect a portion of their assets from the Medicaid spend-down requirements.
The LTC market continues to evolve. Over the last few years, a product known as a Hybrid policy has gained popularity. It combines elements of a Life Insurance Policy with LTC benefits. An individual determines the amount of assets to protect. A life insurance policy is issued with an LTC rider.
As an example, Bob has retirement assets totaling $500,000. His research revealed that the average stay in a nursing home is 2.5 years. He also knows the average cost per month is $8,000, for a total of $260,000. He wants to protect half of his retirement assets. One year after the purchase, an illness placed him in a full-time nursing care facility. Bob passed away thirteen months later. All products have different conditions, but for the purpose of this illustration, Bob’s benefits started 30 days after his admission. The policy paid out twelve months’ worth of benefits for a total of $96,000. Bob’s heirs received the difference between the original value of the life policy and the benefits paid out, $154,000.
All insurance contracts need to be fully examined, and their benefits clearly defined before action is taken. Talk to a fiduciary planner to decide if a Long-Term Care policy is the right tool to manage risk for you and your family.
Remember, people don’t plan to fail; they just fail to plan.
Financial Enhancement Group is an SEC Registered Investment Advisor.
