There are two types of long- term care hybrid solutions. Hybrid, in that these solutions are not traditional long -term care insurance, but also, hybrid as a choice superior in cost and benefit. The two hybrids are: linked benefit plans, and accelerated death benefit plans. A linked benefit plan links cash, long term care and death benefits into one pool-package with the sales and benefit emphasis on a large pool for long term care purposes. Accelerated death benefit plans on the other hand, are life insurance plans where the life insurance actually becomes a long- term care pool in the event of claim. Long term care and benefits are one and the same-one pool-for a dual benefit package.
Hybrid solutions have come to fruition as a result of the inadequacies of traditional long-term care insurance products. Traditional Long-Term Care Insurance is a health insurance vehicle and as such, does not guarantee the cost year by year. It has been a line subject to tremendous loss as claims have occurred at higher levels than anticipated for long durations. This experience has led to significant pricing increases at renewal (up to 100% or more). These increases cause consumers to shave back benefit or to abandon their policies. Furthermore, traditional long-term care insurance is a “use it or loose it” proposition in that if you don’t go on claim, you receive no benefits.
The entire idea of talking about older age morbidity if off putting to many however, it shouldn’t be. Retirement planning and morbidity planning are intimately mixed. As advisors, you can’t talk about retirement funding beyond age 65 without considering the financial hit that fund may take with a long-term care event.
The long-term care discussion has two main touch points-the incidence of care and the cost of care. Incidence is a function of demographics and the extended life expectancies of Americans. A 60 year old today can expect to live approximately 24 years to life expectancy. Keep in mind, that the definition of life expectancy means that 50% of your age cohorts will die and 50% will be alive living relatively normal lives.
You’ve seen some of the statistics:
- 50% of men and 60% of women in the age 65 and over cohort will require chronic care.
- That rate above increases significantly of the age 80 and over cohort.
- Average duration of that care is 2.2 years for men and 3.7 years for women.
- Beginning in 2026, 10,000 per day will turn age 80.
- Supply and Demand: the number of people requiring chronic care will increase by 84% by 2050, the number of caregivers will increase only by 13%; that demand creates an upward price pressure.
- Annual chronic care for in home care (Midwest) this year; approximately $54,000; by 2029, that number increases to approximately $77,000. Keep in mind, this is for care at home!
Many people of wealth will say; “I can self-fund for long term care expenses”. Yes, but why? There is no leverage is self-funding. $100K of care paid for by an insurance carrier will typically cost $10K to $30K in total premiums paid. Why not take advantage of that leverage? Even if you never go on claim, we know you will die and these plans have a death benefit (income tax free).
Linked Benefit Strategies, with their focus on robust long -term care pools, might be the best of all possible ways to insurance for long term healthcare. Costs and Benefits are guaranteed and the death or surrender values clearly remedy the “use it or loose it” trap in traditional long-term care insurance contracts.
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