by Bob Carlson
Editor, Retirement Watch
It’s estimated that more than 72% of older Americans (65 and over) will require long-term care (LTC).
And there’s a 91% chance that, if you are married and over age 65, one of you will experience a long-term care event.
What’s more, the average lifetime cost of their long-term care will range between $250,000 and $370,000, depending on where you live.
So right now in 2021, it’s a good time to talk long-term care.
In fact, my favorite LTC protection plan has just been improved, and available to more people than before (more on that in a moment).
First things first… Americans now have more options than ever to help pay for a future long-term care event, and these newer options are significantly more appealing and rewarding than traditional long-term care insurance.
I’ve covered in past issues of Retirement Watch the many troubles in traditional long-term care insurance (LTCI). Most insurers exited the market. Many of the remaining insurers continue to raise premiums on existing policyholders.
In Virginia, for example, 29 different insurers in 2019 had sought premium increases averaging 50% or more. Premium increases would more than double on average on a dozen sets of policies, according to reviews of filings with the state insurance commission reviewed by The Virginian-Pilot.
The situation is similar nationwide, and these premium increases are on top of other substantial increases in recent years.
Understandably, many people are skeptical and prefer another way to plan for any long-term care needs they may have. Few of us can pay for exorbitant costs of long-term care out of our assets if we need it, so we seek some kind of insurance.
A newer, more popular option is known generically as the Asset-Based or Leveraged Care LTC plans
These plans have three distinct advantages over traditional long-term care insurance.
1) This isn’t use-it-or-lose-it coverage. With traditional long-term care insurance (LTCI), you pay premiums for years, usually decades. If you don’t need long-term care or only need a small amount during your lifetime, the only benefit you receive is peace of mind from knowing the policy was there if required. There’s no cash value account or refund of any of your premiums. With the new Leveraged Care options, you or your beneficiaries always get your premium back in benefits or a return of that premium.
2) Your cost is locked in for the life of the policy. Your premium and benefits are 100% guaranteed and can never change. Once your policy is paid up, you never have to pay another dime out of your pocket.
3) Your savings are leveraged. The amount you have available to pay for long-term care usually is three to 10 times your total deposits, depending on your age when applying.
There are Many Variations of Asset-Based or Leveraged LTC Plans
The one I really like is known as the Return of Premium Long-Term Care plan, or ROP LTC.
The foundation is a universal life insurance policy with a long-term care benefit. Your amount of long-term care coverage is determined by your age, the amount you deposit, the number of years you want coverage and the inflation rate you select, either 0%, 3%, or 5%, and whether you want simple or compounding annual increases.
The 5% compound inflation rate provides you the most protection, but also decreases your initial coverage the most.
There’s no medical exam required to qualify for the ROP LTC Plan. You simply answer some questions about your medical history and take a cognitive impairment test, which is all done over the telephone.
You or your beneficiaries, at a minimum, receive all the premiums you paid in the form of benefit claims, a refund, or a death benefit on the policy.
The death benefit can actually exceed your deposit. You can receive a refund of 100% of your premiums by canceling the policy no sooner than five years after owning the policy or at the end of your funding period.
Most asset-based plans require premiums to be deposited in a lump sum, usually of $50,000 or more.
For a number of reasons, many people can’t or don’t want to make that one big deposit.
The ROP LTC plan allows you to make deposits over a period of 1, 5, 7, 10, or 15 years. You only need to deposit enough to produce at least a $50,000 life insurance benefit. The amount will depend on your age and other factors.
Periodic payments give you less coverage for the dollar than a lump sum premium does. But the initial coverage amount takes effect immediately and increases with your selected inflation rate.
Another Advantage: The ROP LTC is an Indemnity Policy
There are two broad types of long-term care insurance policies.
Most traditional LTCI policies and some asset-based policies are reimbursement policies. Once coverage is triggered, you have to incur the LTC expenses and submit proof of them to the insurer for reimbursement.
In other words, you wait to receive your check. There also are likely to be questions about whether particular expenses are covered by the policy.
In an indemnity policy, you qualify for a monthly benefit amount. When coverage is triggered, you receive the monthly amount.
With the ROP LTC policy, you pay for the first 90 days of coverage, and then the monthly benefits begin.
You can use the monthly benefits however you want. You can pay friends or relatives to provide your care at home. Or you can have professional home care, avoiding a nursing home altogether.
Of course, if you absolutely need to go to an assisted living facility or a nursing home, the expenses are covered, up to your maximum monthly benefit. If the cost of your care is less, you can save the excess or use it to pay for other expenses.
As with other LTCI policies, your benefit is triggered when a health care provider certifies that you need help with at least two of the six activities of daily living, or have cognitive impairment. You don’t have to enter a nursing home or have a previous hospital stay.
Also note that the monthly benefits of the long-term care are paid out tax-free.
And when you examine the cost of the ROP LTC, it is guaranteed not to increase – while premiums on traditional LTCI can increase.
In general, the ROP LTC policy is available to people ages 40 to 75, while some other plans are available up to age 80.
This policy is ideal for people who have money in safe, low-yielding investments held primarily for future LTC or other emergencies.
By repositioning some of the money in the ROP LTC policy, you immediately leverage those funds.
The policy increases the amount of money available for LTC by a minimum of three times your premium and up to 10 times, depending on your age and the other premium factors, such as inflation.
To a better retirement,
Editor, Retirement Watch Weekly
P.S. I was alerted to ROP LTC by David and Todd Phillips of Estate Planning Specialists. Dave and Todd are my go-to sources for the best in life insurance, LTCI and annuities. They have a digital report with more details, The Return of Premium LTC, that they are offering to my readers at no cost. For more information about this and other LTCI options, contact them at 1-888-892-1102 or follow this link to learn more and get your free report.
About Bob Carlson:
Bob CarlsonRobert C. Carlson is the author of the books The New Rules of Retirement and Retirement Tax Guide, editor and investment director of the popular retirement newsletter, Retirement Watch, and editor of the free weekly e-letter, Retirement Watch Weekly. Bob is a frequent speaker at investment conferences around the country, and you can also hear Bob as a featured guest on nationally-syndicated radio shows, such as The Retirement Hour, Dateline Washington, Family News in Focus, The Michael Reagan Show, Money Matters and The Stock Doctor.