Premiums on standalone long-term care insurance policies have been steadily increasing for years—and the qualification requirements attached to the policies have made standalone LTC difficult to obtain for even younger clients.
The newest development in the LTC planning arena, however, can have a significant impact on clients who already maintain standalone LTC policies—state approvals of rate increases at an alarmingly rapid rate have led to situations where clients can no longer afford to maintain LTC policies that they may have had in effect for years. For this particular group of clients, LTC planning may be even more important than for clients who never purchased the insurance to begin with—meaning that advisors should become well-versed in the alternatives that might present viable solutions for clients who can no longer afford to maintain their standalone LTC policies.
The Current LTC Insurance Landscape
While its nothing new that the cost of standalone long-term care insurance has been increasing for years, some states have recently permitted premium increases of between 200% and 300%. These increases apply to the premium cost on policies already in effect, so that many middle-income clients who have purchased LTC insurance will simply find these increases prohibitively expensive and be forced to surrender their policies.
Because state regulators can approve insurance premium increases if they find a significant need for the increase, the premium increases clients have seen to date are likely not the end of the story. Insurers have been seeking out rate increases steadily for years, and because the cost of long-term care continues to rise, are likely to continue doing so in future years. The difference today is the level of premium increases that states are signing off on.
According to a recent study, the median cost of care in a nursing home is around $250 per day, or $92,000 per year—making this type of long-term care coverage more important than ever. Fortunately, clients do have alternatives to standalone LTC insurance.
Alternative LTC Solutions for Clients
With the decline of traditional policies, long-term care insurance coverage now often comes packaged with a life insurance or annuity product. The primary appeal of combining life insurance (or an annuity) with long-term care coverage is that these hybrid policies eliminate the risk that the client will never require long-term care coverage. The life insurance policy or annuity will provide a standard death benefit—either in the form of death proceeds or annuity payouts—to the contract beneficiaries even if the long-term care feature is never accessed.