Beware insurance agents offering new “can’t lose” long term care insurance

Insurance companies are wooing insurance agents with something they are already familiar with – life insurance – with what looks like a neat extra benefit: it will also pay for long term care (LTC).  It’s a two for one deal–it pays for LTC, and if that is not needed, your heirs get the life insurance payout.  It sounds too good to be true, and it is.

There are several problems with these policies, but first let’s address the “two for one” concept.  Back in the 1960s, there was a German-made vehicle called the Aquacar.  It was a cute convertible that would go 50 MPH on land…but then you could drive it down the boat launch, into the water, and engage the propellers to go 4 MPH in water!

It was expensive, costing the same as new Pontiac convertible that would go 100 MPH, while pulling a boat with an outboard motor that could go 50 MPH in water. Each of these vehicles would do what it was designed for well and better than the Aquacar.  But the “combo” sounded cool and every red blooded male wanted one.

How does that compare to these new life/LTC insurance policies?  Here’s how: first, these new policies leave out a critical component needed for LTC—that is, 5% compound inflation on the LTC benefit that may not be needed until 20 or 30 years from now.  The costs of LTC have been doubling every 15 years, meaning they will quadruple in 30 years.  Eighteen years ago, a nursing home cost $4500 a month; now a nursing home costs over $10,000 a month.  With full employment and a shortage of workers, cost will increase even faster in the future.

If your insurance benefit does not keep up with costs, you may need to spend-down your nest egg to cover the shortfall until you reach impoverishment.  Then you might have to apply for a welfare program called Medicaid, and then find that you have limited choices for where and how you are cared for.  With Medicaid there will be nothing left for heirs either.  What good is such insurance? It’s a product that tries to do two things and doesn’t do at least one of them very well. Dedicated long term care policies can include inflation provisions, and I won’t sell one without that feature.

Another problem is that these combo products often require you to make one lump sum payment to the insurance company to initiate the coverage.  When a claim for LTC is needed, your dollars will be used up first before getting into the insurance company’s benefit. Then, when your dollars are used and you tap into the policy benefits, the life insurance payout on your death may be reduced to nothing—depending on how much of that benefit you need to use. A dedicated life insurance policy does not loose value based on your need for long term care.

I have looked at many of these policies and found them not only lacking, but very expensive compared to traditional LTC insurance.  Often that single premium that is needed to buy the two-for policy, if left in a CD or other interest earning account, could fund traditional LTC insurance premiums without ever using a penny of the principal.  You keep your money and let the interest pay for LTC insurance – you get both rather than one or the other.

If you are concerned about how you will be able to pay for care when your health changes, seek out a professional with years of experience in the financing of LTC.  With proper guidance you may find you need less of it than you might imagine.  When the most appropriate products are offered, clients find such insurance affordable and feel secure they will be able to cover care costs without impoverishing themselves.

For more information, visit and consider discussing this with an expert.


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