Do you have long-term care insurance? If so, has your premium stayed the same, or increased? If you do not have long-term care insurance, have you decided against it because of the cost? Or maybe you never got around to investigating long-term care policies. There is an alternative to traditional long-term care policies to pay for your long-term care expenses and is typically much more economical. There are life insurance policies now that allow you to access the death benefit of your policy during your lifetime if you incur long-term care expenses.
Over the last couple of decades, I have spoken with many people who had traditional long-term care policies. I do not recall any of them ever saying that their long-term care policy premiums stayed the same. Most all of them when asked, have said that their policy premiums have increased, some more than doubling.
A few years ago, I had three different clients in their 90’s, who were going to cancel the long-term care policies they had for years because the annual premiums doubled from about $1,400 per year to over $2,800 per year. We discussed the possibility and cost of a nursing home stay and the likely overall cost of the policy. By continuing the policy, even if they lived to over 100 before needing long-term care benefits, they would only be paying the equivalent of about two to three months’ nursing home stay over the next six to eight years. They all kept their policies and within a couple of years, all three ended up in a nursing home and all qualified for long-term care benefits from their policies.
I recently talked with a couple in their mid-eighties whose annual long-term care policy premiums went from about $4,000 each per year to over $10,000 each per year. They could not afford to continue the policies. Although their policies lapsed and they were no longer eligible for the significant benefits under the policies, they were still eligible to receive reduced long-term care benefits which could not exceed the total premiums paid over the years on the policies.
I had three clients come in to the office this past week whose long-term care policy premiums have increased substantially. All were interested in alternatives to pay for their long-term care expenses. One woman was now paying $367 per month for her long-term care policy, or more than $4,400 per year.
Because of these issues with traditional long-term care policies, many life insurance companies are now offering life insurance policies that have an accelerated benefit rider, also called a long-term care benefit access rider. With this rider on your life insurance policy, you can access a portion of the policy death benefit monthly during your lifetime to pay for your long-term care and related expenses when you need assistance with activities of daily living.
Activities of daily living typically include dressing, eating, mobility, prescription administration, bathing, grooming, toileting, money management, shopping, food preparation, communication and community mobility. Depending upon the policy, the assistance could be in your home, an independent or assisted living facility, adult foster care home or nursing home. The death benefit of your policy is then reduced by the amount you use for long-term care expenses.
Unlike traditional long-term care policies, life insurance policies with an accelerated benefit rider often have a fixed premium for your lifetime. With these policies, you can budget because you know what the cost will be, and you will not have the risk of being priced out of the policy with an increasing premium.
In addition, the underwriting requirements for life insurance are a little more relaxed than for long-term care policies. You may qualify for a life insurance policy with an accelerated benefit rider, when you would not qualify for a traditional long-term care policy. This happened to me and my wife Emily last year when we were investigating long-term care policies. Even though Emily and I are relatively healthy, we were both denied long-term care policies for health reasons. However, we both were healthy enough to qualify for life insurance policies with an accelerated benefit rider.
You may have an existing variable universal life insurance policy. This is a type of permanent life insurance in which the death benefit will be paid so long as there is sufficient cash value to pay the annual cost of insurance in the policy. When you were younger, these policies were great. You could deposit a lot of cash into the policy to build up the cash value tax-deferred during your lifetime and tax-free after death. The annual insurance cost taken out of the policy was relatively small.
However, as you age and your death comes closer, the annual insurance cost taken out of the variable universal life insurance policy increases, sometimes substantially. I’ve had more than one client in their 70’s or 80’s who had to let their variable universal life insurance policy lapse because the annual cost of insurance ate up all of the cash value of the policy, and they could not afford to pay the annual insurance cost.
If you have an existing variable universal life insurance policy with a cash value and are still insurable for life insurance, you may qualify for a Section 1035 tax-free exchange. You would exchange that variable universal life insurance policy for a new life insurance policy with an accelerated benefit rider. My wife Emily and I did this last year.
Emily and I each had an existing variable universal life insurance policy that we bought when the kids were born. We purchased the policies for income replacement, the kids’ college education and the payoff of our home mortgage. Fast forward 30 years. We are in are late 50s planning for retirement in the next decade, the kids are out of college supporting themselves and our mortgage is paid off. We do not need the life insurance, but are concerned that our health may deteriorate to the point at which we will have long-term care expenses.
In addition, because of our ages, the insurance costs of those variable universal policies were increasing and would soon start eating into the cash value and death benefit of the policies. We were able to do a Section 1035 tax-free exchange of the cash value of our existing variable universal life insurance policies for new fixed premium life insurance policies with accelerated benefit riders. Now, if either Emily or I need any assistance with activities of daily living, we can access the death benefit of our respective policy to pay for those expenses.
According to an AARP survey, 43% of 65 year old persons will spend time in a nursing home. Of those, 55% will spend more than one year in a nursing home and 21% will stay more than five years. 1 in 1,200 homes burn down; do you have homeowners insurance? 1 in 250 cars are in an accident; do you have collision insurance? 1 in 2 people age 65 will go into a nursing home; do you have insurance to pay for your long-term care expenses?
Even if you do not spend time in a nursing home, you may need assistance with activities of daily living at home or other facility. You owe it to yourself to investigate all your options, including a life insurance policy with an accelerated benefit rider to pay for your long-term care expenses.
Published edited October 28, 2018 in The Times Herald newspaper Port Huron, Michigan as: Pay for their Long-Term Care Expenses with Life Insurance