By Dan Schulte, Vice President and Manager, Annuities and InsurancePrint This Post
According to the U.S. department of Health and Human Services individuals aged 65 and older have a 70% chance of needing care at some point in their lives.1 Also, it currently costs $102,930 annually for a private room in a nursing home in the United States and those costs have risen 3.1% annually over the last 8 years.2 These potential expenses can be devastating to a legacy and/or a spouse, so it’s important to put a plan in place to address how you will protect your assets from this risk in retirement.
Traditional long-term care (LTC) insurance can provide valuable protection that will pay an income tax-free benefit to be used for care in a facility or for care in the home. However, these products offer no cash value or death benefits (i.e. use-it-or-lose-it). As a result, if care is not needed prior to death, the premiums paid into the plan are lost. Also, most traditional LTC products have also imposed substantial price increases in recent years that have made these products less attractive than in the past. Consequently, many retirees and pre-retirees are forgoing coverage, and are using their own assets to self-insure. Individuals who decide to self-insure with their own assets, may not fully understand the risks by assuming that they will likely not need care or they may underestimate the costs if care is needed.
As an alternative to the “use-it-or-lose-it” aspect of traditional LTC insurance and the uncertainty associated with self-insurance, the insurance industry has developed another type of protection to address long-term care risk. These contracts are called “asset based” or “hybrid” policies that combine long-term care (LTC) coverage with a life insurance or annuity contract. Subject to medical underwriting, these policies are often paid with a single lump-sum premium that offer a LTC benefit if facility or home care are needed, and a death benefit if care is not needed. In addition, some of these policies offer a return-of-premium feature, that allow the policy owner to have the original premium returned if he or she decides to cancel the coverage. By ensuring that a benefit will be paid (either LTC, death benefit, or cash) these additional features often make these types of products more attractive than traditional LTC insurance for certain individuals.
It’s important to have a plan in place to protect you and your family and legacy from the potential high cost of care, so ask for an estimate of your potential LTC costs and an analysis of various long-term planning solutions for you and your family in retirement.
1 2013 U.S. Department of Health and Human Services, National Clearinghouse for Long-term Care Information
2 John Hancock 2016 Cost of Long-term Care Survey.