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Changing the Pieces of Long-Term Care Puzzle

Changing the Pieces of Long-Term Care Puzzle

October 27, 2020

2020 may go down as the year of the jigsaw puzzle. I hadn’t done a jigsaw puzzle in years and then comes COVID! All of a sudden, I have rediscovered my love of doing jigsaw puzzles and lucky for me, I do because who knew that from April to July how many puzzles I would do. For those of you who have been clients of Egan, Berger and Weiner since 2016 you will hopefully know that I have written numerous pieces on long-term care coverage and how best to put the pieces of the puzzle together for the eventuality of needing, and more importantly, paying, for care. I know that there are some of you saying that you will not need any long-term care services and I hate to be the bearer of bad news, but…. statistically speaking that is unlikely. A married 65-year-old couple have a 91% of probability of need some form of long-term care services prior to death. So, with the eventuality of care looming the question comes as to how to best protect yourself and your loved ones if and when you need care.

Historically I have not been a fan of the so-called hybrid policies of the world. These policies combine cash value, life insurance and long-term coverage all within the same policy. Now my problems with these contracts in the past has been the high premiums associated with obtaining the coverage and the fact that you had to purchase two of them (one for each spouse). Well if you know me you know I am nothing if not flexible (sever hyperbole here, I am a creature of habit and not very welcoming to change). That being said I am learning to like the new hybrid policies more than their older predecessors. The new policies unlike the ones prior to them do not require that the contract be paid up with a single premium or a large annual premium payable for 10 years. The new contracts allow for lifetime payments which dramatically reduces the outlay for the new policy. Another benefit to the hybrid approach is that it answers the age-old question, what happens if I am one of the 9% and never need any long-term care services. With the hybrid policy if you die in your sleep and don’t use any long-term care services then your contract will pay out a death benefit, after all it is life insurance, to your beneficiary so this way someone gets a benefit out of the premiums that you have paid, Also because this policy is life insurance the premiums will be fixed and not subject to being increased as is the case with traditional long-term care. These contracts will also accrue cash value so if you decide that long-term care protection and life insurance is no longer needed for your particular situation (not sure what the situation looks like, but once again I am the insurance guy) then you can cash the policy out for its surrender value.

Normally the way these contracts work is that you have a policy with a prescribed face amount and we will use $500,000 for example. Now you can use up to either 2% or 4% of that amount per month (just depends on the contract and option selected) towards long-term care services. So, when you needed care you would have either $10,000 or $25,000 per month that be taken from the policy. Now understand that any money paid out for long-term care services will reduce the death benefit. You are getting benefit from your contract and when you eventually pass then your beneficiaries will receive the remaining balance. Sounds like a win-win to me.

The obvious question then that needs to be answered is, am I better off with traditional long-term care insurance or the new hybrid. The unequivocal answer is a definite maybe or maybe not (how’s that for hedging the bet, maybe I should become a politician!!). Just know the hybrid contracts will never give you the same level of pure long-term care insurance as the traditional models, but then again, they do have their own weaknesses. Like anything in life there is no one answer that works best for everyone. Just because your neighbor is overjoyed with his policy does not mean that it will work for your circumstances. Since everyone’s situation is different, your insurance adviser needs to be able to find the contract that works best for YOU! Just know that your favorite millennial is embracing change and ready for the challenge of fixing your long-term insurance puzzle.