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  • Jun
    17

    Life insurance vs. LTC insurance: exploring late-life care options

    Long term care (LTC) insurance policies help baby boomers soften the blow of expensive care services that typically come later in life. It saves baby boomers from draining their savings and assets to fund their care expenses.

     

    However, a new type of coverage has been gaining popularity in the LTC market: life insurance policies with the LTC rider. The primary objective of this type of insurance is to protect your loved ones and family members when you die. Only in the recent years has it incorporated LTC in its features.

    LTC Insurance

     

    LTC Insurance Policies

    Initially, these policies only cover nursing home care. As we have explored before in Insurance 101: Understanding Long Term Care Coverage, LTC insurance policies now provide coverage for a wider range of non-medical care needs. These are services not covered by health insurance, Medicare, or Medicaid—such as nursing homes, assisted living facilities, adult day care centers, respite care, hospice care, home care, and Alzheimer’s facilities.

     

    It is a widely known fact that the costs of LTC services have been increasing over the years. Many are terrified at the thought of how much they will be in a few decades. LTC insurance provides a solution to that by incorporating inflation protection. These help their policyholders ensure that their policies will still fund enough of their needs decades down the line despite the rising costs.

     

    However, LTC insurance can get too costly when it is not managed or planned properly. Bear in mind that you pay money for the features you add to your policy. This means that the more comprehensive it is, the higher the costs can be. Adding features that you have less chance of needing could mean higher prices for services you will not need. Moreover, companies consider your health and age when purchasing. This is why baby boomers are encouraged to buy early to avoid the higher costs.

     

    To understand these policies more, you can refer to this long term care insurance ebook which tackles everything about the policies—from the costs to recommendations if you are denied coverage.

     

    Life Insurance with an LTC Rider

    Life insurance provides security, but its coverage is unique in the sense that you will never see a dime of it. Instead, it primarily provides for your family members after you die, and unlike LTCI insurance policies, there is no you do not lose it if you do not use it.

     

    Now, life insurance policies have extended coverage to include LTC. Through a rider, policyholders can opt for an acceleration of benefits to use for care needs. Essentially, this means that you get to have the option of tapping into the accumulated value of your policy to pay for LTC.

     

    Typically, this is how it works: once the care needs kick in, the insurance company will pay a fixed amount on a monthly from the policyholder’s death benefits. This may range from 2% to 5%, depending on the elements agreed in the policy. As a reminder, you must read the details of the rider thoroughly.

     

    However, financial experts have pointed out that policies trying to serve different needs using a single policy may end up not serving both well. Moreover, an obvious advantage of this is that it leaves depleted resources for your loved ones, which defeats the purpose of having the policy in the first place. Lastly, and perhaps the most important consideration is that the lack of inflation protection. Unlike LTC insurance policies, life insurance with LTC riders will not protect you from inflation. This means that if you end up needing care decades after you purchase it, there is a big chance your policy will not cover enough of the expenses.

     

    Finding the Right Coverage

    It is important to emphasize that people buy insurance policies for protection and peace of mind. However, no one ever wants to end up using it. After all, you do not buy auto insurance policies and hope that your car crashes.

     

    The same goes for LTC coverage. You plan and purchase these policies for security in case the needs arise. This is why in purchasing insurance you must examine what it is you have a higher chance of needing coverage for. Find the one with the higher odds of paying off.

     

    Moreover, securing coverage is a necessity at this point. By 2030, the US senior population is expected to grow by 49.5%. This means more people needing the same care services you might need. It is better to find coverage now than compete with the population later.

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