Is Long-Term Care Insurance Still Worth the Price?

The cost of long-term care insurance has risen over the past few years. Many carriers have increased premiums by as much as 40% and several of the largest carriers, like Prudential and MetLife, have discontinued offering LTC insurance to new individual policyholders.1 Why the changes? Many insurers have experienced low returns for the assets they reserve to provide policy benefits. In addition, they have received a higher than anticipated number of payment claims. This combination forced insurers to change LTC insurance policy pricing. So, is it still worth it?

Naturally, the answer to that question is based on each person or family’s financial and health situation, so it’s difficult to make generalizations. That said, LTC insurance can be evaluated like any financial instrument. Consider this hypothetical scenario2:

A couple, both age 55 and in reasonably good health, purchases a long-term care policy for each spouse providing $200/day in benefit, which increases by 5% compounded annually, for a duration of 3 years after a 90-day elimination period. The policy provides the same amount of benefit whether care is provided at home or in a facility. One of the leading carriers would offer this policy for about $6,500/year in a combined annual premium.

Assume that one of the spouses requires long-term care for 3 years starting at the age of 80. By that time, the daily benefit would be $677/day (after the 5% annual compounding), for a total of $247,204 in annual benefit.

If the couple had not purchased LTC insurance, and instead “reserved” the $6,500/year in premium, they would have had to earn about 9.77% net of taxes and expenses to provide an equivalent pool of assets to cover long-term care expenses.

Long-Term Care

Long-term care insurance can be a very useful financial asset. That, of course, is the rub – there’s no way to predict whether you use it or not. However, if you don’t, you might improve the likelihood that your LTC insurance investment will pay off. Here are some options to consider:

— If you are applying with a spouse or partner, look for a policy with a “shared care” provision. This feature transfers any unused benefit from a deceased spouse or partner to the survivor.

— Consider one of the new “hybrid” long-term care insurance policies, which combine the features of life insurance with long-term care insurance benefits. These policies can ensure that some benefit will be paid from the policy, either when care is needed or at death. The trade-off, as you might expect, is that premiums are generally higher than traditional long-term care insurance.

Your financial advisor can be an important resource as you make decisions about long-term care insurance. He or she can help you identify and evaluate all of the options available to you.

 

Hewins Financial Advisors, LLC d/b/a Wipfli Hewins Investment Advisors, LLC (“Hewins”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. Hewins is a proud affiliate of Wipfli LLP. Information pertaining to Hewins’ advisory operations, services and fees is set forth in Hewins’ current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. The views expressed by the author are the author’s alone and do not necessarily represent the views of Hewins or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Hewins, and Hewins does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Hewins of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional.
Brad Mueller
Brad Mueller

CLU®, ChFC® | Principal, Chief Practice Officer

Brad Mueller, CLU®, is a Principal and the Chief Practice Officer of Wipfli Hewins Investment Advisors, based in Madison, WI. Brad specializes in insurance and risk-management consulting for business owners and family offices.

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Is Long-Term Care Insurance Still Worth the Price?

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