Tips for Making an Informed Decision
If you’ve owned a long-term care insurance policy over the past couple of years, you most likely experienced a degree of sticker shock when receiving a premium increase letter from the insurance company.
In 2021 alone, the average requested premium rate increase was 78%, while the average approved premium rate increase was 37%.1 Explanations for these increases include morbidity, overestimated policy lapses and the recent low-interest rate environment that’s now in our rearview mirror. Because of these factors, our clients have frequently asked whether it’s worth keeping these policies anymore.
While the answer always comes back to the client’s financial plan and how their policy complements it, here are tips to keep in mind when considering your own situation.
Understand the Averages
On average, someone turning age 65 today has an almost 70% chance of needing some type of long-term care services and support in their remaining years. Of this 70%, men need less length of care (2.2 years) than women (3.7 years), and 20% will need care for longer than five years.2
From a cost perspective, the cost of care depends on a variety of factors, such as care setting, level of care required and geographic location. For a home health aide, the national median cost was $5,148 per month. Additionally, costs at an assisted living facility averaged $4,500 per month, while a private room in a nursing home facility averaged $9,034 per month.3
One of the largest unknowns is understanding how the need for long-term care will impact your regular standard of living. When one needs increased healthcare, other expenses around the edges (such as travel, entertainment, etc.) tend to drop off. What may initially look like an additional $5,148 per month added to the budget may turn out to be much less, depending on how your lifestyle changes.
Know the “Levers” to Pull
If you’ve achieved financial independence and prefer the comfort of leaving your long-term care policy in place, understanding the factors of the policy that impact annual premiums can help you to determine whether to keep the policy as-is or begin the process of slowly stepping out of the policy.
- Maximum Daily Benefit: The maximum amount of healthcare costs your policy will pay for each day
- Lifetime Maximum Benefit: The maximum amount of healthcare costs your policy will pay in total; this amount may be linked to a maximum dollar amount or duration (e.g., five years)
- Inflation Rider: How the policy daily benefit may increase year over year; can be compound, simple or non-existent
- Elimination Period: The waiting period before policyholders can receive benefits for their claims (often denoted as 0, 90, 180 or 365 days)4
Have an “Aging Plan”
Understanding your aging plan should be the starting point of the conversation around long-term care with your advisor. Do you intend to age in your home and have home healthcare when needed? Or would you prefer the environment of a continuing care community that offers varying levels of care and support? If you have a long-term care policy, consider your comfort level with continuing to pay rising premiums in the future. While many anchor their belief in keeping a policy due to the premiums that have already been paid, understand that the cost of the policy in the past will never be recovered, and an understanding of how the policy continues to fit into your plan in the future is the best basis for evaluation.
Discussing your plan with your advisor is an excellent starting point in understanding how your long-term care policy fits within your plan and whether changes should be considered down the road.
At Creative planning, our diverse team of in-house professionals helps ensure your savings, investments and insurance strategies are working together to achieve your goals and protect your family from unnecessary risk. If you’d like help determining whether keeping your long-term care policy makes sense for your particular situation, or help with any other financial matter, schedule a call with a member of our team.
