With the baby boomer generation continuing to age, it increases the importance of long-term care costs. The median cost of a private room in a nursing home has increased to $8,365 a month. These kinds of expenses can quickly drain your savings. While there is no way of knowing if you will need long-term care or for how long, it is important to consider protecting yourself against this devastating expense through long-term care insurance.
Many people avoid carrying this insurance due to it being so expensive, difficult to understand and riddled with controversy over premium increases on older policies that companies previously mispriced. Additionally, this is a product that people should buy on their own rather than through their employer which means you don’t have someone else subsidizing the cost or picking out the right policy for you. An insurance industry group determined that only 16% of people older than 65 who should have a long-term care policy actually do.
Insurance companies are looking to change that through the convergence around smaller benefits. These smaller policies allow insurers to reach the middle-market consumer through lower limits and more-flexible premium payment periods. Now, most of these options do not exist yet, but here are some of the options currently available.
The popularity of stand-alone long-term care insurance plummeted since its market peak in 2002 which saw 750,000 consumers buying policies. This number dropped to just 89,000 consumers in 2016. The problem was that insurers charged too low for old policies and the newer policies were too expensive for consumers. One of the responses to these problems was the development of an affordable product that was also easier to understand. New York Life recently announced the launch of a new product called NYL MyCare. They marketed this product to middle-class consumers as simplified, affordable, and flexible. The product offers pre-designed plans at various levels starting from bronze to platinum where each level has higher lifetime maximum benefits along with maximum monthly benefits, deductibles, and premiums.
The hybrid of life and long-term care insurance policies offer the two types of insurance bundled into one single product. Consumers can see fixed premiums for life, not subject to increase similar to how stand-along premiums work. The underwriting process may be less rigorous for these products than they are for a stand-alone policy. Plus, when adding a continuation-of-benefits rider, these policies can be good for those looking for lifetime or unlimited long-term care benefits.
Fixed and indexed annuities come with contracts that pay extra when you need long-term care. Typically, your annuity will pay one monthly benefit amount. However, if you need long-term care, it will pay a higher monthly benefit that is a multiple of the premiums you paid. Similar to any kind of insurance, you are simply leveraging a relatively small sum in order to buy the possibility of a larger benefit if need be. Plus, any long-term care benefits received from the annuity will be tax-free.