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The Changing Face of Long-Term Care Insurance
There is both bad news and good news when looking at long-term care insurance. Long-term care is essential for many in the Baby Boom generation. The over-65 demographic in the U.S. is expected to grow from 39 million to 51 million people between 2009 and 2019.[i] At age 65, this group can expect to live to age 83,on average. While that may be welcome news to many, it should put preparing for the cost of long-term care high on their to-do lists because most people over the age of 65 need more than one or two years of long-term care.[ii]
The Bad News: Long-term care policies are less affordable
Recently, consumers and financial advisors have begun to question whether stand-alone long-term care insurance is financially viable. During the past five years, 10 of the top 20 companies offering individual long-term care policies have abandoned the market because increasing longevity, uncertain care costs, low interest rates, and a lower-than-expected lapse rate created an environment in which they could not afford to keep issuing policies.[iii] Companies that still offer stand-alone long-term care policies have dramatically raised premiums on new contracts and retain the right to increase rates, when needed, on new and existing policies. Many also have limited benefits and benefit periods. As a result, it’s fair to say fewer and fewer people will be able to obtain and maintain traditional stand-alone long-term care policies.
The Good News: An alternative is available
Many industry experts believe that Linked Benefit/Hybrid Products provide a sound alternative in the current economic climate. A hybrid product is a life insurance policy with a long-term care rider. The rider allows a portion of the death benefit to be paid out to cover long-term care expenses. This type of policy appeals to many, especially if they are unsure about whether they will ever need to use the insurance. With a long-term care rider, if you never need long-term care, your beneficiaries will receive benefits. Also, unlike traditional long-term care policies, which may increase your premium, premiums for hybrid products typically are fixed. For people with a limited budget or tight cash flow, this may be very attractive.Riders are additional guarantee options which are available and may carry additional fees, charges, and restrictions. Use of the long-term care benefits will reduce the death benefit of the policy. You should review a contract carefully before purchasing. Guarantees are based on the claims-paying ability of the issuing insurance company.
While a hybrid insurance solution doesn’t eliminate all of your potential long-term care risk as a traditional long-term care policy may, knowing you have some protection can provide peace of mind.
[i] Centers for Medicare and Medicaid Services, National Health Expenditure Projections 2009-2019, September 2010 (https://www.cms.gov/NationalHealthExpendData/downloads/NHEProjections2009to2019.pdf)
[iii] Chicago Tribune, Long-Term Care Dilemma, April 13, 2012
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