We’ve all heard the horror stories about the investor who did everything right, who had the right job, maxed out their 401k, diversified their portfolio until comfort in retirement was assured, only to have the rug swept out by a debilitating illness.  For this exact reason, insurance companies have created a product called long-term-care insurance.

Since Medicare doesn’t pay for most nursing home costs, and Medicaid doesn’t ante up until your assets are almost depleted, investors who have wealth that they want to pass on to loved ones need to protect it.  Long-term-care policies do just that, In fact, many insurance agents will tell you that as you near retirement age, long-term-care insurance becomes a real priority.  That priority was much easier to satisfy before the policies became losers for the insurance companies, leading insurers like Manulife Financial to ask state regulators for average rate increases of 40%, and other insurers like MetLife, to stop selling new policies entirely.

As baby boomers who already have long-term-care insurance get older and file more claims the premiums are bound to continue to rise, and if you get into a difficult financial spot and let your policy lapse you’ve lost your entire investment. So, what are the options for someone who wants to protect themselves, but doesn’t want to get skinned doing it?

What are your options

First, it’s important to deal with an insurance agent who is knowledgeable in the products that he is selling, and is able to explain the options of different policies and the merits of each.  There is a huge price range across different providers, and agents who only sell one product aren’t going to be able to give you the benefits of that variety.

As the premiums for long-term-care climb, many providers are addressing the rise in cost by offering custom options.  For instance, instead of unlimited coverage, you can shave some money off your premiums by limiting care to three or four years. According to the Centers for Disease Control and Prevention (www.cdc.gov/nchs/data/databriefs/db91.pdf) the median stay in a nursing home is 671 days.

So, cutting down on the stay that you’re allowed could be a smart option for limiting costs.  Some policies also allow you to reduce the annual inflation adjustment from 5 to 3 percent to cut those costs even more.

Options in insurance

Another option for investors who are unable to get long-term-care insurance, or find the costs too prohibitive, are the new, combo products being offered by insurers like Hartford Financial Services group, Prudential Financial, and MetLife.  These permanent life policies and annuities feature accelerated death benefits, or living benefit riders.

What this means to you is that the death benefit of these life insurance policies can be tapped in the event of a diagnosis of chronic illness, and used to pay for care. Many investors like these policies because, unlike traditional long-term-care coverage, if you never need the care, the policy will pay your heirs just like a traditional life insurance policy.  The living benefits of the combo products are usually limited to the death benefit for the policy, though, whereas long-term-care policies will pay all qualified expenses for whatever duration of stay the policy covers.
The decision between these two flavors of insurance is a personal one, but for investors who want to feel safe in their retirement, and who want to make sure that the fruits of their hard work can be passed down to their loved ones, some type of coverage is important.  Talk to your financial advisor to see which one gets you closer to your retirement goals.

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