San Antonio Express-News (Sunday)
Will long-term care policy last long enough?
Acouple of weeks ago, I wrote that my 90year-old father now needs all-day licensed care, and I wondered what kind of insurance would cover this potential, extraordinary expense in my own life.
I received a number of responses and comments from professionals who work in this market. I consulted with three professionals, all of whom sell long-term care insurance for a living, and they all strongly advised against the policy I described in my column.
The short version of their insights: I am an idiot. To which I will add, they are not wrong. In my defense, and in service to you, I’d like to walk you through what I learned since the last time I wrote about long-term care insurance.
First, buyer beware! This is a more complex product than it first appears. You’ll have to put on both your thinking cap and your skeptical glasses when shopping.
What I initially liked about the long-term care product I described recently was twofold: The premiums for a young(ish) person like me seemed moderate and fixed, at $202.08 per month, in exchange for a moderate $250,000 of coverage, and if I ended up not using the longterm care benefit, it offered a life insurance payout to my beneficiary.
This combination of longterm care and life insurance is known in the industry as a hybrid policy. It’s what USAA offers. (To get technical, the policy I reviewed is actually from John Hancock Life Insurance. USAA, in this case, would be acting as a kind of sales arm for John Hancock.)
Hybrids appear to make up 80 percent of the market in recent years, according to InsuranceNewsNet magazine.
The product USAA offered to me has two problems, as I’ve come to believe. One major and one minor.
The major problem is whether the policy would actually be around when I need it. Or, sadly, might it lapse? The minor problem is the disadvantage of a hybrid policy, which I’ll mention at the end.
I’ll start with the major. Will this policy lapse? Honestly, during my conversation with the nice salesperson from USAA, it never occurred to me that this was a risk.
The quote I reviewed provided a table showing how under current costs of insurance and current interest rates, I would have long-term care protection until age 125. Which is lovely and what I would want, since I am likely to live that long. I also took great comfort in the brochure’s boldfaced headline that said right there on Page 3
“Guaranteed Coverage.”
It also said, “Your universal life policy provides a strong no-lapse guarantee,” with just a teensy tiny little footnote next to that phrase. The footnote points out this “no-lapse guarantee” is based on certain assumptions and “premiums greater than those originally illustrated may be required to maintain coverage. Factors such as, but not limited to, the amount and timing of premium payments … or any other change allowed under the contract could potentially terminate the no-lapse guarantee.”
Scott Olson of LTC Shop in Mount Vernon, Wash., had some strongly worded advice for me.
He said that on a separate table of my quote — which I shared with him — it showed that my “guaranteed costs” and “guaranteed rate” only provided long-term care and life insurance benefits until age 87. After 87, the table just showed a series of “###” symbols. What does “###” mean? I asked Olson.
It turns out that’s just an insurance company’s way of presenting something less scary than filling up the table with zeros all the way down after age 87.
Surely, I asked Olson, it couldn’t cancel my policy when I’m 87, just when I’m likely to need it most? Ah, but if either the cost of insurance goes up or interest rates go down, that is exactly what would happen.
Jack Lenenberg thinks about long term-care insur
ance every day, as the owner of LTC Partner in Alpharetta, Ga. When I described my hybrid policy to him, he said: “Never buy a policy in which you hand a pencil and an eraser to an insurance company. Because the insurance company will always have an opportunity to erase your benefits for their own benefit.”
But, I insisted again, this kind of fine-print trickery couldn’t really go unregulated, could it? Customers generally would have no idea how to interpret these tables. Lenenberg suggested consumers carefully read every bit of their policy.
That, I’m pretty sure, is never going to happen.
“Buy the agent, not the policy,” Lenenberg advised, meaning, I guess, only go with someone you deeply trust with your life in the dog-eat-dog world of insurance company versus customer. Again, this advice did not fill me with confidence.
Olsen has “7 key questions” any long-term care insurance shopper should ask. He highlighted for me question No. 6 in particular, as it relates to the policy I described.
His key question No. 6:
“Is this policy guaranteed to be in force until age 100?” The follow-up to that, for whichever insurance salesperson you deal with, is: “Show me the page of the illustration with the guaranteed premium and the guaranteed death benefit, through age 100.”
In my case, I was guaranteed coverage through age 87, and that was it. The rest was just “###.”
For me, this was an eyeopener.
One obvious concluding thought is that, when shopping for insurance, a second and third opinion and quote is warranted. Insurance is one of those products in which we suffer a grave information and knowledge disadvantage compared to the folks selling us the stuff. Asking lots of questions of multiple people at different firms may be one of our few defenses against this disadvantage.
After in-depth conversations with four specialists, I am beginning to understand the issues with this product. And I’m not, generally speaking, at the low end of financial comprehension.
I followed up with USAA with my newfound doubts. My sales contact told me that “chances are” interest rates would not go down. But if something did change, John Hancock would send me updates on my new costs of insurance. I could then choose to pay more in premiums each year after they contacted me.
The thing is, “chances are” is not what I’m looking for when I buy insurance. In fact, that’s the point of insurance, to eliminate the whole “chances are” part.
Finally, a word on hybrids.
A Northwest Mutual salesman I consulted, who sold my in-laws their policy, cautioned against hybrids. His basic theory is that customers should separately purchase longterm care insurance and life insurance, because it is generally more cost-effective for the consumer. Long-term care specialists Olson and Lenenberg agreed with this advice.
Michael Taylor is a columnist for the San Antonio Express-News and author of “The Financial Rules for New College Graduates.” michael@michaelthesmart money.com |twitter.com/michael_taylor