An Option for LTCi Buyers

People who buy Long Term Care Insurance (LTCi) tend to have assets to protect and the means (or at least the desire) to protect those assets.  They buy the policy having read statistics that show about 50% of adults need some form of assistance, if not nursing home care, and see the advantage of buying a policy to protect their assets.  LTCi policies mature in a way, too.  Not that the policy actually changes, but the older you get, the more likely you are to need the policy – so these are policies that you hang on to.  But LTCi is not cheap, either.  What happens if you pay for an LTCi policy for years and then don’t ever use it – what happens then?  The answer: nothing happens.  You belong in that 50% that didn’t need it after all.  Good for you, right?  Well, there is an alternative that guarantees you get a return on the money you paid in premiums all those post-working years.
Life Insurance as an LTCi Tool As mentioned above, when you buy LTCi you intend to keep it.  That’s different than other policies.  You may think that Life Insurance is a type of policy that you keep forever, too, but most statistics show that as little as 15% of policies ever pay a death claim because most policies lapse before the insured dies.  What a waste.  But some carriers are introducing a Life Insurance policy that can double as an LTCi policy, too.  Simply put, you can buy a rider on a Life Insurance policy that allows you to spend down the death benefit on LTC expenses before you die.
Consider this: if 50% of people need some form of care then 50% don’t.  But as a financial planning consideration, I’d call 50-50 a pretty good chance that you’ll need it.  Still, what if you don’t?  Transamerica is selling a Universal Life policy with a LTCi rider that includes a Return Of Premium feature, too.  It gives you these benefits:

  1. If you need Long Term Care, the policy pays you 2% of the death benefit per month.  Example: On a $300,000 policy, 2% = $6,000.  This is a cash benefit, too, not a frustrating reimbursement mechanism that so many LTCi policy offer.
  2. If you never need the LTC coverage, you will eventually die.  Using the same example $300,000 policy, your heirs would receive a tax-free benefit of the full $300,000.
  3. If you get 15 years into the policy and you no longer want the policy, you can surrender the policy for a full return of your premiums.

Cost, Options, Benefits As much as I hate to ever compare insurance to gambling – when you dedicate a % of your income to a LTCi policy you’re making a bet that you think you’ll need the care someday, and that buying a policy is a better way to plan than to pay cash for service when the need arises.  With that in mind, why not hedge your bet and pay a little more for the option to get your premium back down the road?  Or for the option to pass along greater inheritance to your family?
I believe LTCi to be a smart financial move.  But I also understand that it’s an expensive solution to an even more expensive potential risk.  If you’re going to do the smart thing and pay for an LTCi policy, perhaps you ought to first consider the added guarantees and benefits of insuring your LTC risks with a Life Insurance policy.
Purves Insurance is located in Davis, CA and likes to see people make smart insurance buys.