Long Term Care / Long Term Care Insurance

Asset Based Long Term Care Insurance

A new development in the long term care insurance (LTCI) industry is “asset-based” policies  that link long term care (LTC) coverage with a whole life insurance policy or a deferred annuity. Huge premium increases in the early years of LTCI often caused insured to drop their policies because they simply could not afford the much higher premiums. Premium increases were a result of lack of experience in the early years of the industry and projections by actuaries that were too conservative.

Keep in mind that most mid to old age Americans simply cannot afford any type of LTCI because they have so little saved for retirement. They will have to rely on Medicaid or relatives if they need nursing home care. The wealthiest Americans can afford to self-insure and pay any LTC expenses out of their extensive assets. It’s the folks in the middle who need to decide how to prepare for potential LTC costs.

New developments in the LTCI industry include “asset-based” insurance. This means that coverage for LTC is linked to a whole life (NOT term) insurance policy or to a deferred annuity (a tax advantaged way to invest for retirement). The primary advantage to asset-based policies is that typically there will be assets left over after paying for LTC for children or other beneficiaries.

While insurance covers the insured in the event of a loss, one may pay decades of premiums and never collect on a homeowners or auto insurance policy. That’s how insurance is structured and most consumers understand that they paid for protection against possibly devastating losses but may never collect on a policy. Traditional LTCI is the same way. You may never need care and may die suddenly of a heart attack or stroke and never collect on a policy. However, because LTC is different from an auto accident or house fire, and because premiums often skyrocketed making them unaffordable, the industry has devised ways to make paying premiums more palatable by guaranteeing some sort of payout to heirs in the event there is not LTC claim.

Another factor is that far too many Americans think that Medicare will pay for LTC. It won’t. Or they assume they will be eligible for Medicare paying for their care without understanding how the system works.

So welcome to “asset-based” LTCI, a way to make paying premiums more palatable.
“Asset-based long-term care (“ABLTC”) is an innovative insurance strategy that provides coverage for long-term care expenses without running the risk of “wasting” premiums if you don’t need long-term care.”
ABLTC insurance links coverage to a whole life insurance policy or a deferred annuity.

“The beauty of ABLTC is that, if you don’t need long-term care, the annuity or whole-life policy retains its value and pays out to your designated beneficiary.  And many people who might not qualify for traditional LTCI due to preexisting conditions may still be able to obtain coverage.”

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Source: Financial Planning for Women