When to Opt for Alternatives to Traditional Long Term Care Insurance

NEW YORK (MainStreet) — Some 15% of those who don’t currently have or plan to purchase long term coverage in the next five years have an alternate plan in place, according to a new survey by Genworth.

“The good news for the nearly three-quarters of Americans who are willing to make some concessions to ensure they are properly prepared for long term care is that there are options for funding long term care,” said Pam Nelson, vice president of consumer insights with Genworth.

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Options can include an annuity.

“We are using annuities with long term care riders attached for some of our clients that would be uninsurable under a traditional plan due to their current or past medical issues,” said Brian Gordon, president of MAGA, a national long term care brokerage firm in Chicago.

There are also hybrid life insurance plans with long term care riders attached from insurers such as Lincoln, Mass Mutual and Guardian.

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“The benefit of hybrid long term care insurance plans is being able to hedge multiple risks with the same dollar,” said Yan J. Katz, insurance specialist with the Bulfinch Group. “And if the policy holder does not end up needing the long term care rider, premiums paid could be recouped and passed to the beneficiary through the death benefit rather than being lost.”

Although single premium whole life insurance policies with long term care rider options attached only require a one time deposit rather than ongoing contributions, the downside is steep upfront costs to buy it.

"Less money is available to pay for long-term care under these hybrid policies,” said Mike Piershale, president of the Piershale Financial Group.

Although they may cover the same levels as traditional long term care policies for home care, assisted living and nursing home care, hybrid long term care life insurance policies aren’t perfect, because many hybrid life insurance policies with riders attached cap the amount for long-term care benefits at 50% of the face value of the policy.

“Thus if you have a death benefit of $100,000 you may be limited to $50,000 available for nursing home care,” Piershale told MainStreet. “This could leave you with a serious shortfall of funds if you have a long stay in a nursing home.”

Other alternatives are those with critical and chronic care riders that can also be attached; however, the way the benefits trigger are different from traditional long term care insurance policies.

“Long term care policies are triggered by the need for long term care after a specified waiting period regardless of whether or not the disability is permanent,” sad Piershale. “Critical care riders are usually limited to specific diagnosis and may require a physician to certify that the condition is permanent.”

Certified by a physician, the chronically ill individual typically has a severe cognitive impairment or requires substantial assistance with at least two activities of daily living (ADLs) for the rest of his lifetime. ADLs include bathing, continence, dressing, eating, transferring and toileting.

--Written by Juliette Fairley for MainStreet

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