We just recently worked with an investor who let his long-term care insurance policy lapse. Like most policyholders, he was dissatisfied with the increase in rates and intended to shop around. Life continued to change around him: His wife passed away, and his son married and had a child. His priorities have now changed. He is now living alone and would like to leave an inheritance for his grandson’s education.
Unfortunately, now the investor is older and cannot get traditional long-term care coverage. This situation happens all too often. While we don’t know specifics, it is likely that his insurance agent—if he had one—didn’t service the policy. The relationship was done once the investor purchased the policy.
Long-term care insurance premiums have risen dramatically in the past several years. Policies that were written 10 or more years ago did not anticipate the prolonged low interest rate environment that we’ve experienced, so companies have been forced to increase their rates. Health care has also advanced, and people are living longer, but also frequently needing assistance as they age.
Most insurance policies nowadays allow the policyholder to designate an adult child or adviser to be alerted if the policy is in danger of lapsing, helping prevent losing a policy just because the premium notice was ignored or forgotten. Furthermore, the investor’s insurance adviser or financial adviser should have sat down with him to run the numbers and look at the real cost of self-insurance should something happen. While investors often think they are healthy, there is the forgotten hip replacement six years ago or that they’ve had that pacemaker for 12 years. Taking a good look at the cost and making sure your financial priorities have not changed is a good way to help ensure you are not making a decision that might affect you years from now.
If premium cost is an issue, a trusted insurance adviser can look at your financial priorities and look for ways to repurpose your coverage. Hybrid policies combine a life insurance death benefit with a long-term care component. If the policyholder never uses the long-term care benefit, the insured’s heirs benefit upon his passing.
If a policy has lapsed for less than six months, insurance companies generally have an option for a policyholder to reinstate coverage. Usually, back premiums would have to be paid, and you may have to submit proof that your health has not changed. However, after six months, insurance companies are less likely to offer a reinstatement of coverage.
The good news is that all is not lost. Most policies have a non-forfeiture benefit when policies lapse. Should you have a long-term care event, you should be eligible for coverage up to the total amount of premiums you have paid. For example, you will not receive the $300,000 in coverage the policy was written for, but you may still recoup the $20,000 in premiums you have paid if your health condition qualifies you for long-term care.
Your insurance agent and financial adviser are there to help make insurance coverage that fits within your financial plan—and hopefully prevent a long-term care event derailing your goals.
If you have questions regarding your long-term care policy, the Experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
This article is for demonstrative and academic purposes and is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
