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Life Health > Health Insurance

The Advantage of Combination Policies for Self-Insuring Individuals

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In 2008, a majority of the people who could benefit from traditional long term care insurance once again chose not to purchase it. In fact, 1% fewer Americans purchased individual LTC insurance from participating carriers in 2007 than in 2006, according to LIMRA International.

Whether it was because they rejected traditional LTC insurance; because they wanted to retain access to their assets; or because they didn’t believe they would have a need for LTC, many chose to self-insure-or were self-insuring by default, through inaction.

However, at least 70% of people over age 65 will need some LTC services at some point in their lives, according to the U.S. Department of Health and Human Services, which underscores how financially vulnerable people without a carefully considered LTC plan will be.

With economists warning of a prolonged recession, many Americans are starting the New Year facing significant hits to their savings and investments. In 2009, many more will be reconsidering their retirement security and their ability to self-insure the amount of any required LTC services. Along with the growing awareness among Americans of the reality of longevity risk comes an awareness of the costs associated with it.

In fact, now 58% of all adults think it is likely that they will need LTC services at some point in their lives, while 61% say they are concerned that they will be responsible in the future for providing either financial assistance or personal care to a loved one who needs LTC services, according to a recent survey by the LIFE Foundation, Arlington, VA.

While some individuals may have sufficient assets to pay for LTC, using retirement income may not be the most efficient way to handle these costs. Indeed, any well thought out retirement plan would require consideration of the costs of the LTC contingency, including the potential drain on retirement income. As of 2007, the national average costs of LTC, according to the U.S. Department of Health and Human Services, were:

o Nursing home, semi-private room: $181 per day, or $66,065 per year.
o Nursing home, private room: $205 per day, or $74,825 per year.
o Home health aide, $25 per hour.

Long term care doesn’t always mean a nursing home, however. Sometimes, all that may be needed is assisted living, to help with certain daily activities. But even that could cost more than an individual’s expected retirement income. In fact, today’s average nationwide cost for a one-bedroom assisted living apartment is $2,714 per month, according to HHS. One can only guess what it would cost in another 10 or 20 years.

Preparing for the potential need for LTC clearly makes sense, especially if it can help protect existing assets at the same time. Even if a particular individual could afford to self-fund a private room in a nursing home at $74,825 per year, the question remains-does that really make the most sense? Or is it more sensible to leverage those assets so the individual can enjoy them by passing them on to beneficiaries or to a favorite charity?

A combination universal life insurance policy with LTC benefits may help free some of those reserves to seek additional growth while offering protection for potential LTC needs at the same time. By simply repositioning the cash reserves designated for care into a combination UL-LTC policy, it immediately leverages the dollars available, which helps preserve the rest of the portfolio.

While no one can predict what the future will bring, industry professionals can help clients prepare for its uncertainties. A combination UL insurance policy with LTC benefits can help individuals with two very important retirement issues: It can help to shield assets from the high cost of LTC by leveraging fixed assets to reimburse an insured for qualified LTC costs; and if it turns out such care isn’t needed, the policy can then transfer assets to the beneficiaries.

This, in the end, is truly the ultimate goal of any financial plan-to work within the many variables and unknowns of the coming years to help ensure the best possible outcome for the client.

Michael Burns is senior vice president, individual life product management, insurance solutions and Michael Hamilton is assistant vice president, linked benefit product leader at Lincoln Financial Group. Both are located in Greensboro, N.C. They can be reached via e-mail through [email protected].


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