Updated: Oct 30
When formulating a financial plan, clients may be faced with a tough decision..... In many cases, a person or couple will have sufficiently planned for a comfortable retirement, as long as they ignore the 14,000 lb elephant in the room. Yes, I refer to the thing that most people do not envision in their retirement years. That is the potential need for long term care. When you add in the future cost of paying for long term care out of pocket to a financial plan, you often see a much different scenario play out in terms of retirement lifestyle possibilities.
Traditional Long Term Care Insurance
Traditional long term care insurance used to be a solution that made more sense when companies offered unlimited benefits, single pay and 10-pay contracts, and when 100% rate increases were not hitting policyholders. Traditional long term care insurance became a very unpleasant thing to consider, since you don't own the asset, the rate can increase at any time and you don't get any money back for unused portions of your contributions.
Asset Based Hybrid Long Term Care Insurance
Asset based hybrid long term care insurance solves the inefficiencies of traditional long term care insurance. By obtaining long term care insurance under the umbrella of a life insurance policy, you have a contract that lays out all the terms. This type of policy gives you a rate guarantee, so you don't have to worry about rate increases while paying into the policy for several years or decades.
You also own the asset, so at a future date you may decide you have sufficient assets to self-insure (meaning you are comfortable paying for long term care needs out of pocket), you can surrender the policy and receive back the net cash surrender value. Assuming you do not surrender the policy, and you don't exhaust the long term care benefits, the policy will pay out the net cash surrender value as a death benefit to your beneficiaries. Even if you exhaust the long term care benefits, the policy pays out a residual death benefit, which is laid out in the contract terms beforehand, so you know the least amount the policy will pay upon death.
As with traditional long term care insurance, these policies become very unattractive in terms of pricing when you are in your retirement years and are still shopping for or contemplating a policy. It is my recommendation to address this need when you are in your 50's as opposed to waiting until your 60's or later, especially since it's a life insurance policy, you have to be healthy enough to qualify. By doing so earlier, you will find the pricing to be much more palatable, and your financial plan will be much more solid having addressed the 14,000 lb elephant in the room.