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Consider Hybrid Life Insurance

Long term care insurance is optional insurance you can buy to pay for care that is not reimbursed by health insurance or Medicare. When a person is no longer able to function independently, the alternatives are to rely on family members or to spend the nest egg to pay for essential care.

Maybe you have a negative opinion about long-term care insurance because: the monthly cost is similar to a new car payment; or you know someone whose application was rejected for medical reasons; or you have heard that it can be hard to get a claim paid; or your parent got a letter from the insurance company with an option to either pay more for the coverage they initially purchased, or to take less coverage for the money they agreed to pay.

Over the last ten years long-term care insurance has proven to be an imperfect and controversial product. Insurance companies underestimated the frequency and amount of claims.   Lower interest rates than were projected when polices were sold have hurt insurance companies’ investments.  The Pennsylvania Department of Insurance has permitted rate adjustments when proven by insurance companies to be necessary to retain their ability to pay future claims.

If you live to age 65, there is a 70% chance that you will eventually need care that would be a valid long-term care insurance claim, but I don’t tell you that to scare you. Instead, since insurance companies have been losing, there may be an opportunity for you to be a winner with the right approach to long-term care insurance.

If you are an empty-nester who owns life insurance but has no long-term care coverage, have you reconsidered the current and future purpose of your life insurance? If your objective is to provide an inheritance for your children, you might be disappointed.  The cash value of life insurance must be spent-down before Medicaid will help with any nursing home expense, which presently averages more than $10,000 per month in Pennsylvania.

A better option might be a hybrid life insurance policy. Such a policy features coverage for long-term care, but if care is not needed, a death benefit is paid. A hybrid policy generally costs about 5 percent to 15 percent more than a standalone life insurance policy, depending on the company you choose.   Long-term care insurance for women costs more than for men, since women account for two-thirds of all claims.

Over the last decade, hybrid insurance has grown in popularity. It is especially appealing for those who have accomplished other financial objectives, such as paying off a mortgage or helping children acquire an education.   Hybrid insurance overcomes the objection of a person who has no family history of needing long-term care and does not want to pay for insurance that would be wasted if no claim is made.

Jesse Slome, director of the American Association for Long-Term Care Insurance, reports that while overall costs have increased slightly from 2017 to 2018, some costs have declined. “Each insurer establishes their own prices and available discounts, and the cost for virtually identical coverage can vary,” Slome notes.    “You generally only buy long-term care insurance once, so it’s important to do it correctly the first time.”

Appropriate counseling should be obtained from an agent who is permitted to produce insurance from more than one company. An agent can explain how a healthy 60 year old with a decent-sized IRA or 401K can use withdrawals to fund a hybrid product.  It can be easier to qualify a medically marginal applicant for a hybrid life insurance policy than for straight long-term care insurance.

My wife and I bought long-term care insurance for ourselves after experiencing unexpectedly challenging circumstances with our parents who needed care, but no longer qualified to receive insurance.   We wanted to make sure that our children would not need to worry about whether we could afford, or would be willing to acquire, the long-term care that we probably will need.

We learned from our parents’ experience that a need for long-term care is unpredictable. At age 80, one of our fathers was an extremely competitive tennis player, and the other walked five miles every day.  Despite their extraordinary level of fitness, each was the first in his family to become afflicted with Alzheimer’s disease. Our mothers each lived independently with minimal assistance before unexpected falls resulted serious orthopedic injuries. A complication of orthopedic surgery can be a stroke.

Others might be fortunate to dodge such occurrences, but simply become a bit frail at the end of a long, healthy life. Having some daily help to remember medication, get in and out of a shower safely, and fasten buttons or tie shoes can enable some older adults to retain their independence.

Aging adults resist change, which is a characteristic I understand better each year. If I offer resistance in the future about the need for a stranger to come into my home and help me, I have invited my children to remind me that:  “Dad, since you were wise to invest in the long-term care insurance, it would be a shame to waste the opportunity now to have someone help you.”

If you own life insurance and have no mortgage, you owe it to yourself to reconsider your options to plan for the probable need for long-term care. While you are healthy is the best time to do so.

By Dave Nesbit, Attorney