Why I Don't Recommend Traditional Long-Term Care

I was recently asked by an advisor I work with why I don't recommend traditional long-term care (LTC) solutions. I wrote the following in response.

Staeb's Top 3 Reasons for NOT Recommending Traditional LTC Insurance

• No Premium Guarantee – a quick google search will show you endless articles talking about the last 20 years of rate increases on traditional long-term care insurance. It’s so prevalent that insurers are required to disclose their rate increase history in the application. Most linked-benefit products can or automatically include a premium guarantee just by their nature of being a life insurance or annuity contract where guarantees are more common.
  

• Use-It-or-Lose-It – traditional LTCi has NO death benefit, NO cash value, and usually NO return of premium option. It’s like auto or homeowner’s insurance in that if you never file a claim, you never get a benefit, your premiums just disappear. Linked-benefit solutions always include a death benefit, cash value, or return of premium, and in some linked-benefit products you can even get two or even all three!

• Strict Underwriting – traditional LTCi is probably the most strict underwriting criteria of any product I’ve ever worked with. There is an industry saying that a good underwriter looks for reasons to say ‘yes’ to insuring someone and a bad underwriter looks for reasons to decline. I'd be willing to wager that traditional LTCi underwriting has something to do with that.​

None of this was to say that traditional LTC insurance doesn't have a good place. There are situations where it can be advantageous. The most relevant one is for clients who's net worth is high enough to not want to have to qualify for Medicaid LTC benefits, but low enough that Medicaid might be need to be a realistic back-up option. This is because traditional LTC insurance is the only LTC solution that offers partnership protection. LTC partnership is a state-private partnership where eligible policies can provide dollar-for-dollar asset protection at Medicaid claim time. Put simply, a partnership-eligible LTC insurance policy protects $1 of a client's assets from Medicaid spend-down requirement for every $1 of benefits paid by that private LTC insurance policy.

For example, if a client receives $300k in partnership-qualified LTC insurance benefits and had a net worth of $500k (in asset applicable to Medicaid spend down rules) that means the client only has to spend down $200k of those assets because the first $300k are protected because of the partnership program.

Check with your financial professional, state insurance department, and state Medicaid program for details of partnership availability, spend down requirements, and other topics discussed in this post.