There are more Long-Term Care Insurance options available today than ever before when planning for the future costs and burdens of aging. How do you compare these options and insurance companies?
Understand that both the feds and the states regulate insurance companies that offer Long-Term Care Insurance. The policy language must be approved and, for the most part, very similar from company to company.
Underwriting criteria do vary between insurance companies. Your health and family history could determine which companies are available or not available for you to consider.
Premiums can vary over 100% between insurance companies for the same benefits. Shopping becomes essential
There are two key areas to consider first:
- Only consider an insurance company with an A rating with AM Best or Standard and Poors. An A rating has nothing to do with the quality of the policy, only the financial stability of the insurance company.
- Be sure any traditional or hybrid Long-Term Care Insurance policy is a tax-qualified policy that meets the guideline under Section 7702(b) of the U.S. Code. Some life insurance options do not meet these guidelines, and you will want to avoid those plans.
LTC NEWS offers a basic description of the major available plans - including traditional, hybrid, and short-term benefit plans - Top Insurers for Long-Term Care Insurance | LTC News.
The LTC NEWS recommendations for best options to consider are available here - Top Options for Long-Term Care Insurance in 2021 | LTC News.
Common Options
There are several available options for traditional Long-Term Care Insurance that include inflation benefits, shared spousal benefits, return of premium options, and more.
Inflation Benefits
Inflation benefits are the most common - and essential option. To be partnership certified, a policy must include inflation benefits at most ages.
Policies offer compound inflation benefits (usually 3 and 5% compounded - some companies offer other inflation amounts from 1 to 5% compounded). What this means is your benefits - not your premium increase every year.
For example, if you have a plan that pays an initial $4000 a month with a pool of money worth $125,000 with 3% compound inflation, the benefits in 25 years would be $8,375 a month with a benefit account worth $261,722.
A few companies offer simple inflation benefits. This means your benefits increase an equal amount based on the original benefit and are not compounded.
Another available option with some companies is guaranteed purchase options. Generally, this means you get an option to purchase more insurance every few years - at additional cost. Some companies give you the option - other companies schedule the increase unless you actively reject them. A guaranteed purchase option is not usually desirable since premiums keep going up as you get older. Plus, this type of inflation does not meet federal guidelines to make your policy partnership certified in most situations.
A few companies offer BOTH a fixed inflation option with a purchase option on top of that. It gives the policyholder the ability to purchase additional inflation - or additional benefits - without evidence of insurability.
Shared Spousal Benefits
Most insurance companies offer shared spousal/partner benefits. Insurance companies either provide a third benefit account that both spouses can use if they exhaust their benefits account - or if they exhaust their benefits, they can use the benefits from the other spouse's policy.
In most cases, unused benefits at death result in a premium reduction, but the unused benefits go to the surviving spouse.
Dual Waiver of Premium
Most every company will waive the premium when you start receiving benefits under the policy. However, some companies offer a rider (at an extra charge) to waive both premiums (for couples) once one person goes on claim.
Hybrid Options
Several companies offer a combination of life insurance or an annuity with a qualified rider for long-term care called a hybrid policy. Some will provide full cash benefits, and others will base benefits on bills for service received.
The main benefit of a hybrid is the death benefit. The policyholder will either receive benefits for long-term care, or the beneficiary will receive the death benefit.
Be careful as these can be designed for maximum death benefit or for maximum long-term care benefits. The policy should always be designed for maximum long-term care benefits (otherwise, it is just an expensive life insurance policy).
Be sure any company you are considering is a true hybrid policy that meets federal guidelines under Section 7702(b).
Short-Term/Limited Duration Policies
Not every state offers these short-term care policies; however, it is a viable option for those with health problems or for those who are older. In addition, for those looking for an inexpensive option or looking to add to existing coverage, this could be an option to consider. There are only a few companies that offer this type of policy.
Generally, they offer one or two years of benefits that are payable to you in cash. The underwriting is more relaxed, and a qualified Long-Term Care Insurance specialist will help you determine if you would qualify for coverage.
Seek Help from a Specialist
Most general insurance agents and financial advisors have little experience and knowledge in long-term care planning. Plus, few represent multiple top companies.
Seek the assistance of a qualified and experienced Long-Term Care Insurance specialist who represents the top companies. A specialist will help you compare available options and navigate the underwriting and policy design.
Not every agent that says they are a specialist is truly a specialist. The American Association for Long-Term Care Insurance (AALTCI) suggests three questions to ask any agent or advisor when considering long-term health care planning:
- How long have they been selling Long-Term Care Insurance?
The AALTCI says that any agent or advisor who specializes in long-term care should have a minimum of three years of experience, though five or more will be better.
- How many Long-Term Care policies have they sold?
Typically a Long-Term Care Insurance specialist will have helped at least 100 individuals get coverage, although many will have helped 500 or more in their career. Some of the nation's top specialists have helped 5000 or more individuals obtain coverage over their careers.
It is not necessarily how many years a specialist has been working in this area - but how many people they have helped along the way.
- How many insurance companies does the person represent?
Most important, according to the AALTCI, is determining if the financial advisor or insurance agent represents multiple insurance companies. Any agent or advisor you work with should be able to explain and sell you both traditional Long-Term Care Insurance (and be 'partnership certified') as well as hybrid policies.
Be sure they understand the differences between 7702(b) regulated plans and the less desirable 101(g) plans. The agent or advisor should have a thorough understanding of the underwriting criteria of each insurance company.
Comparing is Good
The ability to compare the top available plans is to your benefit. However, keep in mind that insurance rates are regulated, and every insurance company must file their products and premiums with the state's department of insurance.
A qualified specialist will be able to compare all the top plans, review underwriting, offer affordable policy design options, and match you with the best coverage at the lowest cost.
Remember, the ideal time to start your research and obtain coverage is when you are in your 40s or 50s, although if you have very good health, you can find appropriate and affordable coverage at older ages.
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