Health Care

Hybrid Policies Offer Options for Long-Term Care

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YOUNGSTOWN, Ohio — When it comes to retirement, the best advice is to simply plan for it. Chase Booms has seen what happens when you don’t, especially for long-term health care.

“I’ve had a grandmother in a facility for nine years now and we’ve watched the majority of her money whittle away,” says the vice president of the Chase Agency. “It’s hard to protect if you don’t plan ahead of time.”

While the cost of long-term care in the Mahoning Valley is below the state median, it remains expensive. A study by Genworth Financial, an insurance firm based in Richmond, Virginia, found the median annual cost of a semi-private room in the Youngstown-Warren metropolitan statistical area this year is $77,928. A room to yourself costs $93,988. Staying in an assisted living home costs $36,720 and in-home care from a home health aide runs $39,468.

“It doesn’t take long for someone to put a good whooping on their portfolio,” says George Morris, when someone needs long-term care. Morris is president of Morris Financial Group, Salem.

The alternative, he continues, to paying out-of-pocket is to have an insurance policy that covers those services. But over the years, through a combination of difficulty in pricing premiums, low interest rates reducing investment returns on premiums paid and inadequate reserves, insurance companies have pulled back on offering stand-alone long-term care insurance policies.

Earlier this year, because of the losses incurred by its long-term policies, Genworth – the same company that conducted the cost of care survey – halted all sales of life insurance and annuities.

“Even though companies are exiting, they’re still honoring the contracts they have. They’re just not taking on new risk,” Morris says. “Or the new risk will fall on to linked long-term care products, where they’re riders on annuities or life insurance.”

These hybrid policies, Booms observes, are setting a new trend. Rather than purchase only a long-term care policy, clients are tying the coverage to other policies and investments.

A common step is to link it to a life insurance policy, he notes. If you end up in long-term care, you can pay for it by withdrawing from the policy at the cost of reducing the payout to your family when you die.

Another strategy is using investment profits to pay for health care.

“You’re buying it not for the rate of return, but for the secure investment with the benefit and it can have a doubling or tripling effect on your money,” he says. “If a client [early on] puts in $100,000, then at age 70 that can turn into $300,000 that can be used for long-term care needs.”

Both Morris and Booms note that long-term care insurance is always on the list of discussion points with their clients, but they also say that it can be a hard sell. Morris says such coverage isn’t sold; it’s bought.

“A lot of people just nod,” he says. “The people who have gone through it all want [the insurance]. They’ve had a parent or a spouse or friends go through [long-term care]. It’s had an impact on their life and they want to look into it.”

But beyond that, the target demographic for long-term care insurance is by no means narrow. Policies are available at nearly every price point, Booms states, altering only the monthly allowance.

“Some people are concerned who have $100,000 and some people are concerned who have $2 million,” he says. “It all depends on what they want their money to do for them. Do they want to protect it? Do they have children or grandchildren they want to leave it to? Or do they not have a need to pass on as an inheritance?”

The insurance can benefit just about everyone, Morris adds. The first of two exceptions he can think of, he says, are those who can’t afford the premiums. Don’t buy it if it puts you over the edge, he advises. The others are the ultra-wealthy who can afford to pay the costs out-of-pocket.

“There’s a crying need for this,” he continues. “If you have a pensions or Social Security and have saved up some in CDs or IRAs, you’re right in the sweet spot.”

When it comes to selling the insurance, both agree, age is often the barrier hardest to overcome. Those old enough to need the coverage for long-term care can be denied it. Those young and healthy to get reasonably priced premiums rarely think about paying a few thousand dollars per year for insurance they won’t use for two or three decades, if then.

“The ideal time to buy it is when you don’t need it,” Morris says. “The need is high, but it’s difficult to get. … The industry will figure it out and it’ll land on these [hybrid policies].”

Published by The Business Journal, Youngstown, Ohio.