Three Alternatives to Long Term Care Insurance

With so many companies leaving the long term care insurance market place, or raising premiums significantly, we are getting more and more questions about whether long term care insurance is really a smart purchase.

You may have heard a government statistic quoted, probably by an insurance agent, stating something to the effect that 70% of people over 65 will need some form of long term care. This number is based on a government study conducted many years ago, and while it might be accurate it doesn’t tell us what percentage of long term care policies actually end up paying out benefits.

According to research done by the American Association for Long Term Care Insurance the chance of someone buying long term care insurance coverage at age 60, and using policy benefits during their lifetime was 35%. So, 35% will use their coverage and 65% won’t. While the numbers varied for various age groups the actuaries used in the study said they did not vary all that much.

If you already have a policy in general terms, I would suggest keeping it unless it is creating severe financial hardship for you to continue making premium payments. But what if you haven’t already purchased coverage? Should you buy a policy or are there other alternatives? Yes, there are. Here are three for you to think about:

1.              If your personal health history and that of your family looks pretty good, and you think you stand a really good chance of being in the group of 65% of long term care insurance purchasers who will never collect benefits in their lifetime, then you may choose not to purchase the coverage. If you go this route, make sure you don’t lose any sleep at night worrying about what might happen if you did get sick and need care.

2.              There are now available combo or hybrid life and long term care policies — basically, a life insurance policy with a long term care benefit rider attached to it. This way you know that you will get something back in return for your premium payment. If it’s not long term care insurance benefits it will be a life insurance benefit payable to your heirs.

3.              Here’s something you may not have considered: using a home equity line of credit. You would only draw against the line of credit if you incurred long term care-type expenses. If you don’t draw on the line of credit there is no cost to the line of credit other than maybe a small application fee and perhaps an appraisal fee.

If you like this idea make sure you consider a reverse home equity line of credit. It won’t be available through your bank or credit union; it’s a form of a reverse mortgage that works like a home equity line of credit, but even better.

The line of credit increases every year automatically. Some lenders cover all your closing costs, and you never pay for the line of credit unless you actually draw against it. If you do draw against the line of credit, you don’t have to make monthly payments. The line of credit is repaid when you move out of your home.

Knowing which long term care strategy is best for you depends on your individual situation. Your best move would be to review your situation with your financial advisor, but make sure they don’t have any skin in the game. In other words, they shouldn’t be collecting a commission if you did choose to buy a long term care policy. You want their advice to be totally objective and unbiased.

Brian Fricke

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