Who is providing coverage for long-term care expenses now?
The landscape of coverage for long-term care expenses is changing. As fewer insurance carriers offer stand-alone policies, who will provide the protection Americans so badly need when they can no longer care for themselves?
History of LTC insurance
Long-term care insurance policies became very popular in the 1990s, with premium volumes growing from $2 billion in 1995 to $11.5 billion in 2012.1 However, the industry experienced heavy losses due to factors including lower-than-expected lapse rates, low investment returns, high capital requirements, underwriting challenges and distribution networks that charged high commissions. Many were forced to increase rates on large blocks of business and some have stopped selling long-term care insurance altogether.
With droves of Baby Boomers entering their later years, the need for long-term care protection is still there – and growing.
Alternatives have emerged
While stand-alone long-term care insurance policies can provide important protection if the insured only needs coverage for long-term care expenses, there are other alternatives for those who also need some other type of protection or asset accumulation potential.
Other financial products that are available to help pay for long-term care expenses: now include group plans through work, as well as LTC riders on life insurance policies and annuity-based products. Hybrid policies, that combine life insurance with an LTC rider, for example, allow clients to receive a benefit for qualified long-term care costs and pass assets to their beneficiaries via a life insurance benefit, which is typically reduced if long-term care benefits are used.
LTC insurance policies vs. LTC riders
With a stand-alone long-term care insurance policy, clients are paying for one benefit only: protection from the potentially high cost of long-term care expenses. There is no potential for cash value build-up and premiums are not guaranteed to remain the same for the life of the policy. That said, the benefits are typically tax-free and long-term care insurance premiums may be tax-deductible in certain situations. Like a life insurance policy, a long-term care insurance policy is backed by the claims-paying ability of the insurer.
For those who need both life insurance protection and coverage for long-term care expenses, a combination policy may be a good choice. There are generally three types of life insurance policy riders available that pay out benefits for illnesses: long-term care riders, critical illness riders and chronic illness riders. These are each considered accelerated death benefit riders, since you are advancing the death benefit as you take money for expenses associated with illness. They are available on certain individual permanent life insurance policies.
- Long-term care riders – typically available for an additional cost. In general, if a physician certifies that the client needs substantial assistance in performing at least two of the six Activities of Daily Living (eating, bathing, dressing, toileting, continence and transferring) or is cognitively impaired, the rider will advance all or a portion of the policy’s death benefit to pay for qualified long-term care services. In general, the client need not be permanently disabled in order to receive benefits; typically pays on permanent or temporary claims that exceed a 90-day elimination period.
Not too long ago, policies with these types of riders were typically funded by a single premium payment and were often used by the affluent only. Today they are readily available with flexible premiums, which may appeal to a younger, less affluent crowd.
- Chronic illness riders – sometimes included with the life policy for no extra charge. Like a LTC rider, the client needs a physician to certify that he or she needs substantial assistance in performing at least two Activities of Daily Living before receiving benefits. However, in this case, the prognosis typically needs to be permanent, not temporary.
- Critical illness riders – typically available for an additional cost. Similar to chronic illness riders, but generally pay benefits for specific critical illnesses, such as cancer, stroke or heart attack.
1 How Will We Care? Finding Sustainable Long-term Care Solutions for an Ageing World. Sigma, No 5/2014. Web
Life insurance products are issued by Equitable Financial Life Insurance Company (Equitable Financial) (New York, NY) or Equitable Financial Life Insurance Company of America (Equitable America) and co-distributed by affiliates Equitable Network, LLC (Equitable Network Insurance Agency of California in CA; Equitable Network Insurance Agency of Utah in UT; Equitable Network of Puerto Rico, Inc. in PR) and Equitable Distributors, LLC. For New York state-based (i.e., domiciled) financial professionals, life insurance products are issued by Equitable Financial Life Insurance Company (New York, NY). All companies are affiliated and directly or indirectly owned by Equitable Holdings, Inc., and do not provide tax or legal advice.