I had a wonderful coffee talk with one of my referral partners this morning. He is a trusted financial advisor in the Springfield area. One of the subjects I brought up was long-term care insurance policies. As a previous nursing home administrator, I am familiar with traditional long-term care policies (i.e. Genworth, New York Life) and how they work. My grandparents invested in a traditional policy years ago, and it came in handy when we had to move grandma into a memory care. When our family became power of attorney for my grandma, I was able to understand even further the pros and cons of a traditional long-term care policy. One of the areas that stood out to me was how much money my grandparents paid every year for their traditional policy, and they never used it until much later in life. Don’t get me wrong, when coverage was needed the long-term care insurance paid exactly what the policy stated, and it did help my grandma with nursing home costs. However, there were many years prior of paying the annual premium, and basically it went bye-bye. This morning, I was very surprised when I learned that there is another avenue to investing in a long-term care policy that includes life insurance and financially saves the client in the long run.
So, you may ask why would I need long-term care insurance? You may think the best route is to save a little every month in case you need to move into a senior community or need in-home care. Well, here is why… How much does senior living communities and in-home care cost?
There are different tiers (independent living, assisted living, nursing home, memory care). They range from $2000 to $9000 per MONTH. In-Home Care (medical services in your home) usually charge from $19-25 per HOUR.
Hmm, I bet now you’re thinking you may need to investigate this long-term care insurance coverage I am talking about.
Let me help you understand the basics and differences between Traditional Long-Term Care Insurance versus Life Insurance with Long-Term Care/Chronic Illness coverage.
What is a traditional long-term care policy?
This type of policy consists of companies like Genworth, New York Life, Mutual of Omaha, and Lincoln Financial Group, and every policy has certain stipulations such as how much they will cover per diem when medical services need to be initiated. Typically, you would find a couple of long-term care insurance policies on your own or through a broker, and you would pick the best insurance policy that meets your annual budget as well as the coverage per diem when medical services will be used and how long the coverage lasts. The policy you select provides a certain amount of coverage per day if you needed medical services in your home (i.e. in-home care) or if you lived in a senior community (i.e. assisted living, memory care or nursing home).
What is the downside of choosing a traditional long-term care policy?
Typically, most of the traditional policies increase the premium almost every year, and sometimes it’s substantial. Some policies start out reasonable, but once you sign on to the policy you will be surprised how much the premiums increase annually; some increase every 2-3 years, however, the percentage is high enough to meet the annual increase mark. Also, these policies are a ‘use it or lose it’ concept; you could pay every year for your policy and possibly end up never using it, which means no money back. With this type of policy it’s a gamble. The average age for people to begin using their long-term care policy is 80, so if you buy into this type of policy before 80 (let’s say 65 or even 70), you would have lost 10-15 years of finances (you don’t get that money back).
What is a life insurance with long-term care/chronic illness policy?
You would get this type of policy through your financial advisor or a broker. Your advisor or broker work with a certain amount of insurance companies (or a liaison that connects with specific insurance companies), and they find a select few that meet your specific criteria (financially and medically). When you pick the policy that best fits your needs you would pay an annual amount and that amount goes toward your life insurance AND long-term care coverage. Also, this type of insurance offers the premium to stay the same; you won’t have surprises of significant annual increases. Furthermore, with this type of policy it isn’t a ‘use it or lose it’; if you never used your long-term care coverage and you pass away, the money would go to your assigned beneficiary(s). If you decide to go this route you can safely invest in this policy when you absolutely don’t need it and knowing that you’re not throwing away your money every year because it goes toward your life insurance versus in the drain (with a traditional policy).
What is the downside of choosing a life insurance with long-term care/chronic illness policy?
The premium is higher for this type of policy versus a traditional policy. Also, if you end up using the long-term care coverage for medical needs, your life insurance piggy bank will be reduced for your designated beneficiary(s).
Why should I invest at all in a long-term care policy?
You may not think you’ll need the coverage at any point, or you may think you’re healthy enough right now not to invest in one, but when the medical coverage is needed you will want to be proactive.
It is much easier to find a reasonable policy when you’re healthy and not in crisis mode; you will be able to have a better selection of policies (financially and medically) to choose versus taking any policy that will accept you.
What is a good age range to start discussing long-term care policies?
Generally, 55 – 65 years of age.
Who should I go through to explain my options?
You should contact my company, and I will refer you to a financial advisor that I trust. I do not receive a kickback for referring you to a specific financial advisor; my referral is connecting you to the right person that is trustworthy, attentive, personable and is an extension of my services.
What if I have a financial advisor?
You should schedule an appointment with your financial advisor to discuss Life Insurance with Long-Term Care/Chronic Illness coverage. You ultimately want to work with the advisor that is already handling your financial portfolio.
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