Currently, long term care insurance (LTCI) policies are still not widely accepted by senior Americans age 50 and older; the estimated LTCI cover is less than 5%. The main reason for not buying long term care insurance cover is that they will not be able to receive any benefits if they do not require extended LTC since it is not an eventuality that every senior will need help with daily living activities. Due to the high cost of LCTI, not many seniors are willing to pay for the private insurance and they rather self finance if they really do need long term care for extended periods.
You can also consider buying combination policies that offer both long term health care with other benefits such as life insurance and annuities. These have better tax advantages since funds withdrawn from your insurance policies for LTC purposes will not be taxed.
However, some financial advisors feel that stand-alone long term care insurance is confusing enough without the need to repackage it with conventional life insurance products. Consumers need to carefully review the advantages and disadvantages of such combination long term care and life insurance policies.
A good reason to buy combination LCTI policies is when you have pre-existing health conditions that pose a problem when you try to get the traditional stand alone LTCI policies. When combined with a life insurance or annuity option, the medical check may be less stringent and it is easier for some seniors to get accepted.
Permanent Life Insurance With Long Term Care Benefits
Note that only permanent life policy and LTCI combinations are available. This means you cannot buy term life insurance combined with LTCI. The long term care insurance is an additional rider that will pay out a portion of the total death benefit as an accelerated benefit when it has been diagnosed that LTC is needed. There is a usually a maximum limit on the LTC benefit that can be withdrawn and note that this is subtracted from the policy’s death benefit, hence the name accelerated benefit. You can choose to pay for the LTCI rider premiums as an upfront lump sum or periodic monthly or annual premiums. There is usually a discount offer for paying a lump sum premium for LCT benefits.
Life Care Annuity Insurance
There is another type of annuity and long term care insurance policy, also known as the life care annuity which can be purchased with a one time premium. You will receive a fixed monthly payment for life, and when you need LTC, the monthly annuity payment will be increased accordingly. There are other variants of life care annuity policies available which differs by the duration of the annuity payments. The advantages of life care annuities include protection against inflation, tax benefits, etc.
The main advantage of buying a long term care insurance rider attached to your whole life policy is its costs. A standalone LTCI policy may cost $1,000 each year, but a LTCI rider cost only several hundreds of dollars. That is why the rider option is becoming popular as a form of long term care insurance for low income retirees.
To get accepted on a life insurance policy with LTCI rider, the focus is on your life insurance risks such as premature death. On the other hand, LTC insurers are more concerned with your risks of chronic care. That is why patients with pre-existing conditions that may require long term care may still be accepted by a life insurance company.
On the other hand, the main tradeoff with buying LTCI coverage combined with whole life or annuity insurance is the loss of flexibility. You are usually not allowed to drop the LTCI rider unless you terminate the entire policy. Before you decide to purchase a combination policy, ask yourself these questions to ensure a correct decision.
Disadvantages Of Life Insurance Long Term Care Riders
A life insurance long term care rider costs about 20% of an individual LTCI policy. For example, you may get long term care insurance quotes of $1,000 annual premiums, while adding a LTCI rider will cost you another $200 each year. However, you may end up buying unneeded life insurance coverage just to enjoy the cheaper long term care benefits. Normally, seniors buy permanent life insurance for paying estate taxes, or inheritance planning among dependents. Some seniors may find that life coverage is actually not required under some circumstances.
Compared to a conventional long term care insurance policy, LTCI riders usually provide lower benefits up to a certain portion of the life insurance or annuity deposit. That makes trying to plan for long term care using a combination policy tricky since you may have to increase your total life coverage excessively in order to reach the desired amount of LTC coverage needed. It may turn out that a stand alone LCT insurance policy may be cheaper instead. Take a look at your current medical coverage and term life coverage for an updated review of your financial health status to see if you need additional life insurance.
Annual Premium Increases For Long Term Care Insurance
You can choose to pay for the LTCI rider via a lump sum premium or smaller annual premiums. Unlike the fixed monthly premiums for whole life insurance, the insurer is allowed to adjust the premiums for LCT coverage each year, based on the number of claims handled. Paying a lump sum premium will be cheaper, but it depends on your current financial net worth and whether you have the spare cash available.
Normally, well established long term care insurance companies with many years of experience in offering such policies are less likely to introduce substantial premium increases since they have already factored such situations. Very cheap long term care insurance offers from smaller insurers may actually turn out to be more expensive after several premium increases.