Broker Check

When Permanent?

| July 02, 2019

What’s the best life insurance to buy? Ask that in a room full of financial advisors, grab some popcorn and enjoy the show. To boil that down further start with the question, “Should I own permanent or term?” You’re going to love my answer. It all depends on your situation. But I’ll go one step further that may cause some debate….everyone should own permanent life insurance later in life and the reason is Long Term Care.

It’s no secret, people are living longer. When a couple makes it to age 65 together, there is an almost 50% chance one of them will make it to age 90. Take a look at this chart from the 2019 JP Morgan Guide to retirement.

It’s great that we are living longer, but with that longevity comes more costs. Health insurance, co-pays, prescriptions and dreaded hospital visits all continue to drain more money from our retirement accounts. But the biggest potential health cost is a long term care event. As you will see below, almost 70% of us will need some form of long term care in our lifetime.

According to Genworth’s 2018 cost of care study, the average cost of a private room in a nursing home is $142,350. So how do we plan for that? My answer is a permanent hybrid life insurance policy with Long Term Care (LTC) benefits. Old school LTC policies are taking its toll on both policy holders and insurance companies alike. As costs for this type of care goes up, insurance companies are spending more money to satisfy the requirements. In turn, many are raising rates across the board for existing policy holders.   I have way too many clients who are currently in retirement that are receiving letters with 10, 20 even 30% premium increases. No easy increase to swallow if you are living on a fixed budget.    

What’s worse is many of these original policies were “use it or lose it.” They may remind you of your car insurance. Pay your premiums, never get into an accident, say goodbye to your premiums anyway. Live a full, happy retirement without ever needing LTC, say goodbye to your premiums. But the life insurance companies have stepped in and helped. Welcome to the new world of the hybrid Life/LTC policy. Use it or lose it is no longer. You purchase a policy, pay your premiums and if you are fortunate enough to never need long term care, the policy is passed on to your beneficiaries in the form of a life insurance benefit. If you do require LTC in some form you can utilize the LTC portion of your rider to pay your costs. The other advantages to these policies is they don’t just cover nursing homes. For most companies they will cover in-home care, assisted living and alzheimer’s care.

My clients want freedom of choice in retirement, and they certainly want freedom of choice when it comes to medical treatments and their living situation. A Life/LTC hybrid policy provides just that. It’s a bucket of money purchased with discounted dollars that you can use for your own care or pass along to your beneficiaries. Remember, if you’re not allocating some of your money in your retirement plan to long term care planning, you’re potentially allocating all of your money.