New Long-Term Care Insurance Products That May Not Do What They Promise

Many agents are excited about the new LTC insurance products based on getting a percentage of a life insurance benefit to be used when LTC is needed.  They mock the “use or lose it” line while most of their products do exactly that.

First let’s look at the use it or lose it concern.  Many people who purchase a life/LTC combo plan, put in a large sum of money to “single pay” it.  They get the money back (or most of it) if they die without needing LTC.  If they need LTC they get some payment monthly for those bills, but lose the cash and/or the life insurance benefit.  You have your cake OR eat it.

On the other hand, if one puts that single pay lump sum in an investment account, and use the interest (yield) it produces for real LTC insurance, they then have the LTC coverage AND still have their original lump sum.  This is like having your cake AND eating it too.  You get both!

The problem is a bit more complex than just this, though.  True LTC insurance has a provision that increases the benefit 5% compound each year so when care is needed the benefit will have kept up with inflation.  Since this is a product purchased many years before it is likely to be needed, this feature is vitally important.  Without this feature, which most life/LTC policies lack, most people will simply spend down the (then) woefully inadequate LTC benefit when care is needed and end up on government welfare called Medicaid.

If you haven’t noticed the inflation rate, let me give you a comparison:  30 years ago, when today’s 80 year old was 50, you could purchase a brand new Ford Mustang for the sticker price of $6800.  Most of you would have bargained a bit and paid even less.  30 years ago a nursing home that costs $9000 to $10,000 today was only $2000 a month.  Costs to provide care are doubling every 15 years.

Most LTC is provided by minimum wage labor and facilities as well as home care agencies are advertising like mad to hire enough workers – at minimum wage.  Many areas of the country have doubled the minimum wage to $15 per hour.  The NY Times reported last spring that by 2020 more people will be employed as caregivers than work in retail.  What happens in any industry when workers are in short supply?  Wages go up!  I believe inflation in the cost of care will be increasing in coming years.

If you want to prevent becoming a burden on your children, prevent running out of savings, selling your home, cashing in life insurance, and turning to Medicaid, consult someone who specializes in the financing of LTC.  You wouldn’t go to your primary care physician for heart surgery, would you?  You’d seek out a specialist.

We have been working exclusively in the are of LTC financing for 22 years here at  Call or email if you have questions on your existing coverage, are looking for coverage, or simply want to know how to protect some of your assets if you cannot get LTC insurance.  We are here to help.

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