Life insurance policies sold with long term care riders are generally marketed to people around age 60 as an answer to long term care concerns.

They are usually more economical to purchase with a single premium rather than monthly or annual premiums, which would total much more over a lifetime. It is common for the single premium to be a third to half of the death benefit, depending on the size of that death benefit.

For my example, let’s assume a $50,000 premium put into a $100,000 life policy with a LTC rider. The cash value (not the surrender value) will be in the neighborhood of $50,000. The long term care benefit is usually 2% of the death benefit per month, in this case $2000 per month when LTC is needed.

If the client has a LTC need immediately after issue and collects a check monthly for $2000, he is often not aware that this proportionately reduces his cash value. Thus, of that $2000 check, half of it (since cash value is about half the death benefit) is simply a return of his own money. He thinks he is receiving a $2000 insurance check, but only half of that is insurance money.

Over time it gets worse. Since inflation is not a part of the great majority of these policies (or they become prohibitively expensive if it is), the LTC benefit remains $2000 per month over time, while LTC costs have been rising at 5% to 6% annually over the past 20 years.

If a LTC claim occurs 20 years later, and the life policy is still $100,000 but the cash value has now grown to $80,000, then 80% of that $2000 check is simply a return of the client’s own cash value. Only $400 a month is insurance money, while the LTC costs to be paid have more than doubled.

If, however, the client took only the interest on that $50,000 and used it to purchase real LTC insurance, then the $50,000 would always remain as an asset for heirs. The interest (at 4%) could purchase a $3000 per month LTC benefit that would last for life, not just 50 months (2% per month for 50 months = 100%). It would also have 5% compound inflation on that $3000 per month, so that if LTC is needed 20 years later, that $3000 would have grown to $8000 per month and continue growing until death, while the initial $50,000 remains in the investment account for heirs. With LTC insurance, the premium would stop while on claim, so while receiving long term care services, the $50,000 sum would be increasing.

If the client were married, the LTC insurance is even better, due to the couples discount of approximately 40% most policies offer. Thus, the married clients could afford the (higher benefit) LTC insurance with lifetime benefits for both and a $100,000 life policy (or an annual cruise) while still keeping their $100,000 original principal intact.

Why choose your cake or eat it when you can have your cake and eat it too?

Back in the 60′s, there was a neat little car called the Aqua car, a small convertible that went 55 mph on land and 4 mph in water–very cool but expensive. For the same money, you could buy a Pontiac convertible that would go 120 mph on land, pulling a boat with a 60 hp Mercury engine that would go 60 mph in water. Each did a good job on its own. The combo product sounded cool but was a poor substitute for either one.

I sell LTC insurance and have been looking for a good life-LTC combo for years. But I have not found one that, when explained accurately and honestly, was a good deal for the client.

Romeo Raabe is a long term care insurance agent in Green Bay, Wisc. He can be reached by e-mail at rraabe@thelongtermcareguy.com.