So she’s 67, Shannon. The first question that I will ask you is about the premium whole life insurance. What are your thoughts on that? So, to get to Carol’s specific question, she’s asking about a whole life policy with long-term care coverage built into it. I do like this option a little more than just traditional long-term care insurance, although the long-term care insurance policy could be a little more affordable because it doesn’t preserve much money to pass on.
There’s a sweet spot here; you have to look at what you need to protect. If you don’t have many assets to protect, then you may just be forced to go with the option of paying for what you can afford and then relying on a government program to pay for the rest of it. If you have many assets to protect, those assets might be able to generate some money to pay the premiums, allowing you to transfer risk.
When transferring risk, you’ve got the traditional long-term care policies. I’ve given some estimated costs for those. You must be insurable, so you need to get it at an age when you can qualify for coverage, typically meaning you will pay premiums for a long time. With traditional long-term care insurance, I would not expect the premium to remain the same. Inflation is real; we discuss it frequently on the show. It’s been elevated in the last 3-4 years, and healthcare costs and insurance have been some of the areas with the most inflation.
Long-term care premiums are determined by projecting future costs and actuarily deriving a premium. I remember early in my career, some 25 years ago, the major long-term care insurance companies would boast that they never raised premiums on existing policyholders, and that held true for many years — maybe even 10 more years. However, we’ve seen that even the best companies have given rate increases to their existing policyholders.
So, if the premiums are barely affordable in the beginning, you might want to think twice because you should expect these premiums to go up. Even with long-term care insurance in most cases, you don’t ever get your premiums back if you don’t use the care you would have paid for. If you’re thinking about investing $40,000 to $60,000 or more into a long-term care policy over an average life expectancy and then maybe never using it, you’re looking at draining those resources. Additionally, those premiums might only cover about $165,000 worth of care.
Whole life policies, especially those designed for long-term care coverage, have the potential to preserve a little more. The premiums are less likely to change if you get a whole life policy; those premiums are usually guaranteed. You might get a bigger pool of money, perhaps bigger than $165,000, using a death benefit. If you never use the benefit, the remaining death benefit can be passed on tax-free to your heirs.
Therefore, if you can understand the intricacies, this might be a better option to consider. First, you have to consider your assets. If you have substantial assets to protect but not enough to pay for your care outright, that’s the sweet spot for these long-term care options. Consider if you can afford the ongoing and likely increasing premiums for long-term care.
You need to find out if you are insurable. This can become extremely complicated; we’ve just scratched the surface here. In my opinion, it’s best to work with a fiduciary who can sell you any product that may be best for you. A fiduciary with access to all products has a contractual obligation to recommend what is best for your particular situation.
Avoid simply getting quotes until you’ve done extensive homework on the different kinds of policies available. You’ll likely deal with a salesperson who can only sell certain companies or policies. Ask a lot of questions because if the salesperson only sells widgets, to them, everyone needs the widgets they sell. Also, know that whether it’s a life insurance policy with long-term care provisions or traditional long-term care insurance, there are hefty commissions. I’m not suggesting that salespeople or financial professionals don’t earn their commissions, but you need to go in with your eyes wide open.
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