Does LTC insurance still make sense?

I knew it was coming. Still, when I received notice that the premiums for the two long-term-care insurance policies that I bought for me and my husband a few years ago would increase by 23%, it took my breath away.

As a healthy adult in my late 50s, I have a long life expectancy and a 70% chance of requiring LTC services that could be very costly.

The latest MetLife Mature Market Institute Survey of Nursing Home, Assisted Living, Adult Day Services and Home Care Costs shows that the cost of care continues to rise (see story on Page 17). The Washington, D.C., area where I live is one of the most expensive places in the country for assisted-living facilities, with costs averaging nearly $6,000 per month.

Clearly, there is still the risk that I will need long-term care. But I worried that agreeing to a big premium hike, with no assurance that there won’t be more, might be a losing proposition.

Policyholders like me should check their benefit level and compare it with the cost of care, according to Tom Riekse Jr., managing partner of LTCI Partners LLC.

“Most people who bought 5% compound inflation protection 10 years ago have more than covered the cost of care,” he said.

They may be able to scale back on their inflation protection or daily benefit amount, or to reduce their coverage period to hold down premiums, Mr. Riekse said.

To assuage clients’ doubts, compare their coverage to what is available in the market. It is a good bet that they can’t replace their policy for a better price.

The bottom line is that people who have bought a stand-alone LTC policy and who can afford the higher premium should bite the bullet and pay it. But for those who haven’t yet taken that step, an alternative strategy may be more cost-effective.

“Standard long-term-care insurance policies appear a very poor deal in terms of value for the money for healthy retirees, especially for women in above-average health who have a long life expectancy,” said Barry Gillman, principal of Longevity Financial Consulting LLC, a research firm that works with insurers.

COMBO APPROACH

He concluded that the best LTC solution for those entering retirement in good health is to combine a hybrid life policy, which includes LTC coverage, with longevity insurance that pays guaranteed income for life starting at an advanced age, such as 85.

Those in below-average health are more likely to benefit from LTC insurance — if they can qualify for coverage, Mr. Gillman said.

Unlike the use-it-or-lose-it approach of standard LTC insurance, a hybrid policy lets beneficiaries inherit a death benefit if long-term care isn’t needed. Most LTC policies also are capped at five years or less, meaning that an extended illness could wipe out someone’s life savings if the coverage is exhausted.

Longevity insurance, on the other hand, provides highly leveraged monthly payouts for the rest of a person’s life, assuming that he or she lives long enough to trigger benefits. The money can be used for any purpose, including long-term care.

“Estimated life expectancy is the most important factor in the decision of what type of coverage to buy,” Mr. Gillman said.

E-mail [email protected] to download a copy of his research paper, “Long-Term Careless.”

The website’s interactive Longevitage calculator can be used to estimate a client’s personalized life expectancy.

PREMIUM PROTECTION

Because most hybrid products, which now include life insurance policies and annuity contracts, are paid with a single premium, older clients don’t have to worry about rate increases at a time when they may be least able to afford them.

“These products can be funded from an existing source, such as an [individual retirement account] or [certificate of deposit],” said Bruce Moon, vice president of The State Life Insurance Co., which has offered Asset-Care, a hybrid whole life product, for more than 20 years.

Standard LTC insurance tends to be bought by people in their 50s, but the average purchase ages for Asset-Care and its annuity combo product are 68 and 75, respectively, he said.

“Our clients know their income sources, and they can select a solution based on where they are in retirement, rather than trying to project their needs 15 or 20 years in the future,” Mr. Moon said.

Visit oneamerica.com for details.

Of course, single-pay premiums may not be feasible for younger clients still juggling the costs of raising a family and saving for retirement. For them, a new, improved LTC insurance policy may be the answer.

“Long-term care insurance used to be a one-and-done process,” said Jesse Slome, executive director of the American Association for Long-Term Care Insurance. “Today, many will find it advantageous to take what I call a “layered’ approach, locking in some coverage now with the ability to add to their coverage in future years, even if their health has changed.”

I plan to hold on to my LTC policy but may decide to pair it with a longevity policy someday.

Although my birth certificate says 57, my virtual age is about 10 years younger, according to the Longevitage calculator. That means I could be around for a very long time.

Mary Beth Franklin (mbfranklin @investmentnews.com) welcomes your comments and suggestions for column topics. Twitter: @mbfretirepro