Your retirement plan is not complete until you’ve made preparations for long term care expenses. Some people choose to self-insure; others purchase long term care insurance.
It’s wise to plan ahead so you can be prepared for the possibility of developing a chronic illness, but traditional long term care insurance is no longer the best option for most people.
The traditional LTC insurance model is simple: you pay your premiums every year and the insurance company promises to pay a set amount of long term care benefits if your health deteriorates and you need long term care either at home or in an assisted living facility.
However, the insurance companies made some critical mistakes when they were designing these products in the 1970s and 80s. They underestimated how long people would be collecting benefits, and they overestimated the potential to profit on interest from investing the premiums.
The end result? Drastic, unpredictable premium spikes for existing policyowners. Many people cannot afford these increases and have been forced to drop their policies after paying premiums for over ten years.
To get a picture of what’s been happening to policyholders, take a look at the customer reviews of Genworth, which holds 18% of the market share for traditional LTC insurance:
Just received the announcement for mine and my husband's renewal for September 2017 and the rate has increased 70% (this is their stated percentage in the letter). So now what? After paying into this for many years, with increases right along, do we cancel this and lose everything we invested? Or do we continue and expect more rate increases? It doesn't seem like this is a reliable company anymore in paying claims but at our age, (76 and 72) we're stuck. This is just wrong!
Beverly - Fair Oaks Ranch, TX 07/25/2017
Unfortunately, these kinds of stories are all too common among LTC insurance policyholders. Genworth has reportedly lost $2 billion on these policies and continues to lose $100-150 million per year, which is why they have increased the premiums so much.
They have also faced several class action lawsuits related to their long term care insurance products. They have been accused of misrepresenting the profitability of their LTC business model and wrongfully depleting revenue that was needed to pay future claims.
John Hancock, another big player in the traditional LTC insurance industry, has stopped selling new LTC policies and consistently raises the premiums on existing policies every year.
When the insurance companies realize that their product is not profitable for them, it’s a good sign that you should not buy that product. There is no premium guarantee on traditional long term care insurance, so you don’t know what your premiums will look like in the future, but you can bet that they will increase at some point.
So what should you do, if you need insurance but you’ve determined that traditional long term care insurance is an unsafe investment of your hard-earned money?
Self-insuring might be the best bet for some people, but it’s not always a realistic option.
If you’re looking for long term care insurance but you don’t want to worry about future premium increases, hybrid long term care insurance is an attractive option to consider.
Hybrid policies combine life insurance with long term care benefits. From the policyholder’s point of view, one of the key differences between traditional and hybrid LTC insurance is the premium guarantee.
Traditional policies have no premium guarantee; hybrids do.
So if you’re paying an annual premium on a hybrid policy, you do not have to worry about premium increases.
Another difference between traditional and hybrid is the existence of a death benefit. Traditional policies have no death benefit; hybrids do.
So if you never need the long term care benefits, your beneficiary will receive a death benefit when you die. That way, you’re getting value from the policy no matter what happens throughout the course of your life.
At Hybrid Policy Advisor, we will work with you to find the best hybrid policies to help you secure your future. We understand the important differences between all the different companies and policy types, and we strive to make it easy for you to acquire the best available product and make the right decision.
Call us at 1-866-365-6558 to speak with an agent today.