Long-Term Care Policies: Not All Are Created the Same

Paul Miller |

The future need for long-term care is a growing concern. Long-term care will affect nursing facilities, assisted living facilities and in-home care, which is why many people are concerned about the evolution of this issue, an issue that is likely to affect all of us. Many changes are taking place in regard to these issues, so it's important to keep track of their ins and outs in order to make informed decisions about available options. Although options for care have undergone many changes in recent years, there are more options available than just traditional care. Linked-benefit policies, life insurance, and long-term riders are also affecting long-term care today.

Traditional Long-Term Care

Traditional long-term care is associated with significant rate increases. In fact, over the last several decades, these increases could be dubbed as drastic. Although its "use it or lose it" platform is associated with more bang for your buck than many other options, traditional long-term care does offer a few tax benefits that are attractive to people. For instance, it is associated with premium deductions and tax free monies paid for personal injury or sickness. Many people are attracted to this type of care because the premiums are typically paid for life or until the individual requires care.

Linked-Benefit Long-Term Care

Linked-benefit, or asset-based, long-term care combines both life insurance and long-term care insurance. A single premium is paid, which creates a life insurance policy that will pay upon death, unless long-term care is needed. In the event long-term care is needed, the money will come first from the acceleration of the death benefit, then from an extension of benefits rider. If the policyholder changes his mind prior to a long-term care need, he can receive his money back. The main downside of this type of policy is interest rate risk; if interest rates increase, the opportunity cost of having a significant amount of money tied up in a single premium can be high. The single premium shouldn’t represent a larger percentage of the policyholder’s total net worth.

Life Insurance Hybrid Long-Term Care

Some people are checking into the life insurance hybrid long-term care. This type of care provides dual benefits for policy owners because its premiums will either go toward a death benefit for beneficiaries or toward long-term care. In this way, there is no "use it or lose" stigma associated with the platform. However, use CARE when reviewing the contract definitions, as they may not offer true long term care coverage, or may be difficult to qualify for. The death benefit is also tax-free, making this a popular option for people who want to pass on some wealth to their beneficiaries. Some consumers view this type of plan as an alternative savings account. Because people can cash out the policy or simply leave their cash in as a death benefit for their beneficiaries, there is little to be lost in this type of arrangement even though it is the costlier option.

According to research, about eight million people in the US have some type of long-term care policy. Although evidence suggests that policy rates are climbing, there are also more choices available to consumers. Research also suggests that what many consumers want is to remain at home and have access to care. While nursing home care may be less expensive in some regards, remaining at home is important to many people who are looking to invest in these policies. When searching for a policy, be sure to investigate all the options and the new ones as they come down the pike. Once you prioritize which options are best for you, you'll be able to choose a policy that fulfills your needs. Contact Paul Miller, CFP® for more information.