By: Lindsay Tigar,  Her Money featuring Samantha Garcia, CFP®, AIF®, CDFA®Wealth Advisor at Halbert Hargrove

If you’re considering long-term care insurance, here’s a look at everything you need to know about the landscape and pricing in 2021.

As life expectancy continues to climb higher — the average life expectancy today is 78.7 in the United States — we need to know how we’ll continue to care for ourselves as we age. Options to pay for our care are as limitless as the ways we choose to save. Some people put money in an HSA with an eye toward saving those funds until they need care in retirement. Others save in a 401(k) or IRA with the knowledge that they’ll use a portion of those funds for their care. There’s also long-term care insurance, which can provide coverage for chronic health conditions and services like adult daycare, in-home care, and room and board at an assisted living facility or nursing home. Unfortunately, as the number of individuals needing long-term care has increased (the aging Baby Boomer population, + our longer life expectancies overall) the costs have increased, too, says Samantha Garcia, a wealth advisor for Halbert Hargrove.

If long-term care insurance has been on your mind for yourself, or for someone you love, here’s a look at some of the most frequently asked questions and how to evaluate consider this your gentle nudge to investigate if perhaps now is the right time to get started:

HOW THE PANDEMIC HAS IMPACTED LONG-TERM CARE

The price for long-term care insurance has only gone up during COVID times. Why? For one, it’s been more expensive to keep residents safe. “Rising costs of providing care, higher wage demands, increased training requirements, PPE, regulations, and other changes in the long-term care industry have continued to drive costs upward,” says Jessica Landis, CFP, ChFC, vice president, and head of investment solutions at Janney Montgomery Scott,
Additionally, we saw interest rates hit new lows in 2020, which makes it more difficult for insurance companies to offer solutions with guarantees, which has also driven the cost of insurance higher, Landis explains.

As a result of these changes, Landis anticipates the following impacts:

  • Premiums will continue to increase for new insurance policies, and clients who have existing policies could see increases if they are still paying premiums.
  • It is going to be more challenging to get insurance. Insurance companies are stepping away from clients at advanced ages or with certain health conditions where risks are higher.
  • New types of insurance will come to the market where clients are expected to take on more risk, with fewer guarantees for “full coverage” offered by the insurance companies.

DO I NEED LONG-TERM CARE INSURANCE? CONSIDER THE FOLLOWING:

Your age and health

If you’re currently in excellent health and under the age of 40, your chances of receiving a solid plan with adequate coverage at a lower rate is high. Some people initially invest in this type of insurance once they become parents, in order to safeguard their children.

But make sure you read the fine print — Landis says some long-term care insurance policies have ‘use it or lose it’ in the fine print. Meaning that if you died unexpectedly, all of the funds you paid into your insurance policy would stay with the insurance company. However, many policies come with a “cash value ” or “death benefit” so even if you never need the care, you or your loved ones can still reap a benefit —  make sure your policy has all the benefits you want.

Your gender and marital status 

Sometimes, gender and marital status play a role in what type of coverage and costs you’re offered, Garcia says. As an example, insurers will often give a discount to those who are married, and typically charge women more since they have a longer life expectancy and thus have a higher likelihood of using the insurance.

What type of long-term care coverage is best 

As you make your decision, it’s essential to consider what is most important to you, your family and your lifestyle. As Garcia explains, some of these coverages include a “daily benefit,” which is the amount covered by your policy each day. Since this can range widely, you’ll need to think about costs for care in the area the policy will be used. “A daily benefit that might be appropriate for Kansas may not be appropriate in Florida because of the difference in cost of living,” she continues. “Thinking about future plans and location is important when looking at a policy.”

Another essential feature is “inflation protection,” Garcia continues. Since expenses go up with inflation, health care costs will also be rising. Here’s a great example: if a policy with no inflation protection covers a daily benefit of $300 now, in 20 years, it will still be worth just $300. However, a policy with inflation protection (assuming 5% inflation per year) will be worth $796 in 20 years. “It is crucial to understand what type of coverage is purchased with the policy,” Garcia says.

What type of long term care policy is best 

The traditional LTC policy works a lot like car or homeowner’s insurance in that you’ll pay a monthly, quarterly or annual premium to maintain the policy. But premiums for these traditional policies have risen substantially in recent years (for all the reasons listed above), so hybrid policies have been growing in popularity. Hybrid policies are a hybrid of life insurance plus long-term care benefits. If you die before you use your LTC benefit, these types of policies will give any unused funds back to your heirs as a life insurance payout. One negative with hybrid policies is that you may be asked to provide considerable upfront costs for medical coverage before your LTC benefit kicks in — again, you’ve got to read the fine print.  No matter what policy you choose, Garcia says to ask the insurer about every single detail (and get it all in writing) before signing on the dotted line.

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