Ask the Expert: Learn to Navigate the Changing World of Affordable Long-Term Care Coverage

In the health care field 30 years ago, a new phenomenon happened as people realized the largest individual segment of the population, the Baby Boomers, would someday be elderly.

This fact put a strain on the population considering health care and home care for a large group of people like this had never been seen in the U.S. before. And with this came a creation of long-term care (LTC) protection for those in need.

Statistics today say that 70 percent of the aging population will need some form of long-term care. This can be contributed to longevity through better health care, which does not guarantee a healthy life, but all too often helps sustain a less-than-perfect life.

Recently, there has been an epidemic of companies exiting the long-term care arena, mainly due to mispricing their coverage in the 1970s. There was no reference or experience when long-term care policies were first sold in order to have the statistical data to properly price the risk.

For those companies who still participate in providing standalone long-term care coverage, it tends to be very expensive, with little guarantees that the price will not escalate according to the policy provisions. Gone are those older policies which guaranteed premiums could never increase. These are “use it or lose it” policies in that if you never access the benefits, the policy just goes away when you die.

I recently had a client bring me her LTC policy. It had almost doubled in price after her long-term care company decided to exit the long-term care arena. It was a sobering moment when my she, her husband and I looked at each other, wondering how many times the premiums might double again in price until they couldn’t afford the premiums.

So What Can Be Done?

What’s the answer? There are many strategies to help make LTC affordable. Understanding that long-term care coverage is as important as your car insurance or home insurance is the first step in the process. Reviewing your options, costs and expectations with an experienced financial advisor can help you decide which alternative is best for you, including self-funding for the probability of needing coverage in the future. Here are several alternatives to cover yourselves with long-term care protection:

• Self-Funding means taking the risk that, if you are married, you and your spouse beat the odds of one of you needing long-term care at some point in your life. You plan for any long-term care costs with savings and investments. This method assures that you are using 100 percent actual dollars to fund for the probable need.

• Bundling benefits is when an insurance company bundles death benefits and cash values with a rider allowing access to a predetermined amount of money to be used as long-term care benefits utilizing a life insurance policy. One downside to this is that there is no cost-of-living expense built into this rider, and health care costs are currently one of the highest costs of money increases in our economy. The advantage of this alternative is that each dollar you spend on this insurance, you will either receive long-term care protection, be able to utilize the cash in the policy for some other need or your heirs receive a tax-free death benefit at your death. There are three possible benefits for each dollar you spend.

• Another strategy is to utilize a lump sum amount of money, perhaps part of a 401k, to fund a life insurance policy which identifies an ever-increasing long-term care benefit as you age. However, if it is not needed, then it is converted to either a tax-free death benefit or cash to use as needed. The largest benefit in this strategy is that the lump sum premium can be a tax deduction as a long-term care premium because it follows the guidelines set up by the IRS as a long-term care policy. Therefore, you are using discounted dollars to fund this need.

• Preplanning for this possible cost could also be accomplished through a deferred annuity. There are many annuities, all with different rules regarding the usage of moneys for long-term care. Some annuities allow you to have any surrender fee or penalty waived in order to access moneys in the annuity if long-term care costs are needed. Some annuities guarantee a payout of benefit depending on the age when the funds are needed so you know what you are getting for those long-term care costs.

• With Critical Illness, Critical Care or Short-Term Care coverage, these coverage possibilities are short-term in nature, mostly from six months to two years depending on the company. However, they do provide some coverage, which is always better than no coverage, at a reasonable price.

As you can see, there are solutions to this complicated issue. Utilizing an experienced financial advisor will help you find the solution for your unique financial plan. If you already have a long-term care policy and want it reviewed, or to explore this valuable protection and how it relates to your overall financial plan, feel free to contact me at or 501.868.3434.

Rebecca Rice is the managing partner and founder of RebeccaRice & Associates LLC at 17709 Cantrell Road in Little Rock.


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