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August 04, 2020

How COVID-19 has Impacted Long-Term Care and Life Insurance

With the COVID-19 pandemic showing no signs of slowing, many Americans have started looking at long-term care insurance as well as life insurance to protect their finances and take care of their dependents should they pass or become ill.

While long-term care insurance has been criticized in the past as too expensive and unpredictable in terms of premiums, during the last few years new hybrid policies have evolved that can provide living benefits for someone who falls ill for a long period of time as well as death benefits to their loved ones should they pass. But due to the low-interest rate environment combined with the COVID-19 pandemic, even prices on these hybrid policies are starting to rise.

Some experts are predicting a 10% to 15% increase this upcoming year for new applicants for one of the best hybrid life and long-term care insurance policies on the market and that other insurance companies are likely to follow suit.

If you want to avoid paying those additional premiums and have been looking for some way to get both life insurance and long-term care coverage, you may want to act soon.

How the hybrid works

These hybrid policies are essentially a life insurance policy with long-term care coverage. These two policies bundled into one allow the policyholder to use funds that have accumulated in the life insurance policy to pay for expenses if someone has a long-term illness that requires regular care. If they don’t use the accumulated funds in the policy for long-term care or if they don’t deplete them, heirs will receive the remaining death benefit funds upon the policyholder’s passing.

Premiums may be fixed for life and not subject to increase, as stand-alone policy premiums can be. Medical underwriting may be less rigorous than it is for a stand-alone LTC policy. These policies, when a continuation-of-benefits rider is added, can also be good for people who are looking for lifetime or unlimited long-term care benefits.

If you suffer an event that requires that you have long-term care, there is a 90-day waiting period (known as elimination period) before a policyholder can collect benefits. The clock starts after a doctor certifies the policyholder’s inability to perform two of the following six basic activities of daily living:

  1. Bathing – The ability to clean oneself and perform grooming activities like shaving and brushing teeth. 
  2. Dressing – The ability to get dressed by oneself without struggling with buttons and zippers.
  3. Eating – The ability to feed oneself.
  4. Transferring – Being able to either walk or move oneself from a bed to a wheelchair and back again.
  5. Toileting – The ability to get on and off the toilet.
  6. Continence – The ability to control one’s bladder and bowel functions.

The funds that long-term care portion pays out can be used to pay for home care, assisted living, adult daycare, respite care, hospice care, nursing home, Alzheimer’s facilities, and home modification to accommodate disabilities.

These policies are paid for with one lump sum or an annual premium spread out over a period of time, like 10 or 15 years. You will get more bang for your buck if you are paying a one-time premium, rather than if you pay the same amount over a number of years. The one nice thing about this kind of arrangement is that your premiums can’t rise along the way like they can in a standard long-term care policy.

Typically, a single one-time deposit of $100,000 into a hybrid policy could yield long-term care benefits of about $4,000 over six years. That amount can be increased over time with a compounding inflation rider.

These inflation riders are key to higher payouts and can greatly increase the amount of funds a person receives in long-term care benefits.

When you buy inflation protection in a long-term care insurance policy, you can choose between a “simple” or “compound” rider. The adjustment with a simple inflation rider is a fixed percentage of your original daily long-term care benefit. The compound inflation rider increases coverage more rapidly than the simple version.

The takeaway

As mentioned, prices for these hybrid policies are set to increase by a 10% to 15%. With that in mind, that same $100,000 one-time payment for coverage mentioned above would have to increase to $113,000 to yield the same amount of long-term care benefits after insurers start hiking rates this upcoming year.

Interested in learning more? Contact the Heffernan Insurance Brokers’ Life Insurance Division

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