February 11, 2022 If you believe everything you read on the internet, you may be under the false impression that the traditional long term care insurance market is dead. Well, nothing could be further from the truth.
Traditional long term care insurance is still available in 2022, albeit the marketplace is significantly more concentrated than 20 years ago.
At its peak in 2002 we had over 100 underwriters of long term care insurance. Today we have only 5 underwriters in the marketplace. Yes, this is quite a significant change in availability.
The disappearance of stand-alone LTC insurance companies can be pinpointed to a few factors.
One important factor is the sustained low interest rate environment. Long term care insurance is a capital intensive product that requires underwriters to set aside its capital in reserves for many decades before a long term care claim might be made. With fixed interest rates declining steadily over the past two decades the insurance companies are less incentivized to underwrite a product that is less predictable from a claims standpoint (than life insurance, for example) and requires the insurance company to tie up its reserves for decades at low interest rates.
Secondly, and most importantly, insurance companies can no longer request LTC rate increases to generate profits. The National Association of Insurance Commissioners (NAIC) placed rules in force that make it extremely difficult today for insurance companies to now raise premiums on long term care insurance policies it has underwritten and sold. In the past, long term care insurance companies were able to request rate increases that would be directed not only to paying claims but also to generate profits. This is no longer the case. The implemented Long Term Care Insurance Model Regulation set forth actuarial guidelines in the pricing of LTC insurance to stabilize pricing and to protect consumers. Today, your long term care insurance company can only request a rate increase when needed to pay claims. The rate increase can not be motivated by profits.
Well, once these new regulations were passed that make it very difficult to get rate increases on currently filed long term care insurance policies, most insurance companies decided they no longer wanted to be involved in selling new long term care insurance policies. (Imagine that) The regulators want the insurance companies to get the pricing right on the front end to eliminate the request for rate increases, and to protect consumers.
So, 100 insurance companies dropped the product line!
And, well, here we are.
Today, we have 5 primary underwriters of traditional long term care insurance:
Below we will review and compare the current pricing of each of these underwriters on an apples-to-apples basis.
- National Guardian Life
- Mutual of Omaha
- Thrivent Financial
- Northwestern Mutual
- NY Life
The good news for you as a consumer is these underwriters are committed to the traditional long term care insurance marketplace, and are comfortable with underwriting and retaining the risk.
While it can not be argued that there has been a major shift to the "hybrid" long term care insurance marketplace which offers long term care benefits tied to a cash value life insurance policy and guaranteed premiums, traditional LTC policy premiums should be stable. As a consumer you can feel comfortable buying a traditional long term care insurance policy today.
What Does Traditional Long Term Care Insurance Cover?
Traditional long term care insurance policies are easy to understand. They operate strictly as "use it or lose it" insurance policies exactly like your health insurance, auto insurance, homeowner's insurance. You will pay a monthly or annual premium for benefits if needed. If long term care is not needed, there is not any return of premium or cash value to you.
Long term care insurance will reimburse you for your expenses related to caregiving, whether your care is received in your own home, in assisted living, or in a nursing home. If you are in a facility or assisted living, the insurance will pay for your room and board. If you are receiving care at home, not only will it pay for the cost of your home health aides, but also it will pay for home modifications (building a ramp for a wheel chair, widening doorways) and medical safety alert systems if needed, as well as caregiver training for your family to help you to stay at home.
You will be eligible to receive your long term care policy benefits in one of two ways:
- You are physically impaired: Your doctor certifies in writing that you need assistance with 2 of 6 activities of daily living (bathing, eating, dressing, toileting, maintaining continence, or transferring) and your need for assistance is expected to last at least 90 days.
- You are cognitively impaired ( e.g. Alzheimer's, dementia) and you need to receive verbal cueing and reminders
Studies will show that individuals will have a 70% chance of needing to receive care at some point. The current cost of care today in a nursing home is over $8000 month. However, if you are like most people you will probably prefer to receive care at home. Home care is typically $23.00/hour. So even a modest 6-8 hours of care a day at home will result in a monthly out-of-pocket cost of $5000 month. You are probably aware that Medicare does not cover custodial care.
You will either have to pay privately for your care, or buy long term care insurance to help you with these monthly costs.
Choosing Your Traditional Long Term Care Insurance Options
You get to determine the level of long term care coverage you want to buy. You may not want or need your policy to cover 100% of the costs of your care. You might have social security income, a pension, or dividends that could cover a portion of your cost of care.
You will be able to customize your long term care insurance policy according to your needs.
You will have 3 primary benefit choices to make with your policy.
1) Monthly benefit (some policies express this as a daily benefit) - What amount of benefit do you want to receive every month should you need care? You may generally select an amount between $1500 and $10,000 month.
2) Benefit Period - How many years do you want to receive your monthly benefit for once you submit your claim and need to receive care? You may generally select a benefit period of 2 years, 3 years, 4 years, 5 years, 6 years, 8 years, or Lifetime (Unlimited). 80% of claims will be less than 5 years.
3) Inflation Protection - Do you feel it is important to automatically grow your benefits on an annual basis to keep up with inflation? The insurance companies will let you buy within your policy automatic annual growth of your benefits of 3% compound or 5% compound.
Your choices to these 3 policy benefit selections will determine your premium.
Rates are also based upon your age, gender and your health history.
Women will pay 50% - or more premium than men, because women live longer and are more likely to need care.
The insurance companies will provide discounts to married or partnered applicants.
Couple can also elect to share benefits, if desired through the popular Shared Care Riders that many insurance companies make available on traditional LTC insurance policies.
Pros and Cons of Traditional Long Term Care Insurance
The primary benefit of traditional long term care insurance is your premium will be lower than your comparable premium associated with hybrid/asset based long term care insurance. Below we will look at current long term care premiums for comprehensive coverage to provide you with a sense of the current insurance costs.
You will pay more premium for the asset-based hybrid policy because you will be receiving your money back if care is not needed. With the traditional policy, in exchange for lower premiums, you will not receive any of your premium back.
Traditional long term care insurance certainly can be the most efficient way to protect your assets against long term care costs if you can afford the ongoing annual premiums and if you are comfortable with the risk that your premiums will not be guaranteed.
As I mentioned above, it is likely your premiums will be stable with current regulations, and as the policies are currently priced. But, you will have no guarantees and you will have to be comfortable within the risk that your premiums could change.
Traditional long term care insurance has additional advantages as well.
Most traditional LTC policies will be eligible for State LTC Partnership programs that will afford you Medicaid asset disregard benefits.
Your premiums will be tax deductible. Granted, some hybrid LTC policies will also offer tax deductibility of its LTC premiums.
Tax Deductibility of Traditional Long Term Care Insurance
One advantage of tax qualified long term care insurance is you may receive annual tax deductions on your premiums.
Premiums for long-term care insurance policies are tax deductible to the extent that they, along with other unreimbursed medical expenses (including Medicare premiums), exceed 7.5 percent of the insured's adjusted gross income in 2022.
There are limits, however, to the amount of premium you may deduct.
The 2022 limits are:
Attained Age Before Close of Taxable Year
- Age 40 or less $450
- Age 41 -50 $850
- Age 51 - 60 $1,690
- Age 61 -70 $4,520
- Age71 + $5,640
Business and self-employed individuals have enhanced tax deductibility of LTC insurance premiums.
A C Corporation may deduct 100 % of the premium paid for owners/shareholders and employees and their spouses. The age-based eligible premium limits above do not apply to C Corporations.
The age-based limits will apply however to S Corporations, LLCs, and Sole-Proprietorships however these entities will not have to meet the 7.5% Adjusted Gross Income threshold that individual policyholders will have to meet.
State Partnership Benefits Afforded By Traditional LTC Insurance
Traditional LTC policies may afford you Medicaid asset protection benefits through LTC State Partnership Programs.
Many states and private insurance companies have partnered to help people plan for long-term care. The insurance companies offer long-term care policies that meet criteria specified by each state that participates in the program. In turn, the states agree to provide Medicaid asset protection to people who purchase a partnership-qualified policy.
With State LTC Partnership benefits, should you use the benefits of your traditional LTC policy and still need long term care services, you can apply for Medicaid and protect a portion of your assets from the Medicaid "spend down" requirement.
Hybrid long term care policies do not provide Medicaid asset disregard benefits through State Partnership Programs.
Even if you never plan to apply for Medicaid, possibly this safety net might have some value for you.
What Are Your Costs Of A Traditional Long Term Care Insurance Policy
Certainly in 2022 it is very easy to determine your best long term care insurance value. With only 5 underwriters in the arena, it is straightforward and a quick process for an independent agent such as myself to find your best policy value. Long term care insurance costs are based upon age, gender, and marital status. We will take a look at a wide range of ages with each company to help you to find your best valued policy today.
Let's take a look at rates together for applicants male and female; singled and coupled; ages 45, ages 55, and ages 65.
To help you to see pricing on an apples-to-apples basis we will look at company pricing for benefits of $4500 month, 3 year benefit periods, and automatic annual 3% compound inflation protection.
Certainly you can consider more coverage than $4500 month, and longer benefit periods than 3 years, however every insurance company will offer this design so it will be an easy way for us to see the current traditional long term care insurance costs in the marketplace.
Couple age 45, $4500 month, 3 year benefit periods, 3% compound inflation protection
- Thrivent $259.13 month (male $97.63, female $161.50)
- National Guardian $267.00 month (joint premium)
- Mutual of Omaha $299.48 month (male $113.21, female $186.27)
- New York Life $499.75 month (male $209.28, female $290.47)
- Northwestern Mutual $572.84 month (male $207.65, $365.18)
Couple age 55, $4500 month, 3 year benefit periods, 3% compound inflation protection
- National Guardian $332.00 month (joint premium)
- Thrivent $334.04 month (male $125.39, female $208.65)
- Mutual of Omaha $372.57 month (male $139.05, female $233.52)
- Northwestern Mutual $549.98 month (male $196.06, female $353.92)
- New York Life $562.21 month (male $231.07, $331.14)
Couple age 65, $4500 month, 3 year benefit periods, 3% compound inflation protection
- National Guardian $481.00 month (joint premium)
- Thrivent $496.96 month (male $184.32, female $312.64)
- Mutual of Omaha $537.50 month (male $201.08, female $336.42)
- Northwestern Mutual $682.46 month (male $248.99, female $433.47)
- New York Life $764.41 month (male $303.30, $461.11)
For the above rates for couples applying together, you can quickly see that you will receive reasonable long term care insurance rates from either Thrivent Financial, National Guardian Life, and Mutual of Omaha. Any of these 3 underwriters could be a good decision for you to buy your coverage with. The above rates for each underwriter are the best available pricing for applicants in good health.
Underwriting can play a decision in your selection of company as as well. Your underwriting outcome (approved or declined) could certainly differ with each of these underwriters. For example, National Guardian might not underwrite a specific cancer history or a history of major depressive disorder, while Mutual of Omaha and Thrivent Financial would consider you for coverage. Mutual of Omaha might be more challenging for you if your parents were diagnosed with Alzheimer's or dementia. I review the health history of my clients to accurately determine the best fit from a health underwriting perspective.
The above rates are simply to allow you to see the cost of insurance with each company for the exact same amount of money and exact same level of automatic annual compound inflation protection.
One takeaway from looking at the above rates on an apples-to-apples basis is that you might want to be careful and not run into an agent trying to sell you either the New York Life or the Northwestern Mutual traditional long term care insurance policies.
You can quickly see the NY Life and the Northwestern Mutual long term care insurance policies might cost you 50%-80% more premium for the same benefits than LTC policies that you can purchase through Thrivent, National Guardian and Mutual of Omaha.
The only way for the NY Life policy and the Northwestern Mutual policy to appear to be less expensive is for the selling agent to remove the automatic inflation protection component and substitute it with a "purchase option," having you mistakenly believe you are being offered "inflation protection." The New York Life quote might state Guaranteed Purchase Option. The Northwestern Mutual quote might say Automatic Additional Purchase Benefit (AAPB). Purchase Options mean you will have to pay more to buy more coverage later. The terminology is purposefully meant to be confusing. Be careful. Look out for your best interest. Know what you are buying.
Okay, now let's take a look at the rates for single applicants. The rates will be slightly higher for you if you reside alone.
Single male age 45, $4500 month, 3 year benefit period, 3% compound inflation protection
- Thrivent $122.05 month
- National Guardian $130.00 month
- Mutual of Omaha $133.19 month
- Northwestern Mutual $259.56 month
- New York Life $279.04 month
Single female age 45, $4500 month, 3 year benefit period, 3% compound inflation protection
- Thrivent $201.88 month
- National Guardian $214.00 month
- Mutual of Omaha $219.15 month
- New York Life $387.30 month
- Northwestern Mutual $456.49 month
Single male age 55, $4500 month, 3 year benefit period, 3% compound inflation protection
- Thrivent $156.74 month
- National Guardian $161.00 month
- Mutual of Omaha $163.60 month
- Northwestern Mutual $245.08 month
- New York Life $308.11 month
Single female age 55, $4500 month, 3 year benefit period, 3% compound inflation protection
- Thrivent $260.81 month
- National Guardian $266.00 month
- Mutual of Omaha $274.73 month
- Northwestern Mutual $441.52 month
- New York Life $442.40 month
Single male age 65, $4500 month, 3 year benefit period, 3% compound inflation protection
- Thrivent $230.41 month
- National Guardian $235.00 month
- Mutual of Omaha $236.57 month
- Northwestern Mutual $311.24 month
- New York Life $404.39 month
Single female age 65, $4500 month, 3 year benefit period, 3% compound inflation protection
- National Guardian $385.00 month
- Thrivent $390.79 month
- Mutual of Omaha $395.80 month
- Northwestern Mutual $541.84 month
- New York Life $614.81 month
So, you can see that if you are single and in good health, your long term care insurance premiums available through Thrivent, National Guardian and Mutual of Omaha are very similar. You will want to consider applying to one of these 3 underwriters.
You definitely might want to avoid New York Life or Northwestern Mutual policies if you are seeking a fair valued insurance contract.
Please also be aware that the organization AARP has a marketing agreement with New York Life to sell New York Life policies to you. You are not getting a deal with your AARP membership. Well, maybe a raw deal. Your $16.00 annual AARP membership is only giving you the right here to grossly overpay for your traditional long term care insurance policy. It could be a very expensive membership!
Should You Buy a Traditional or a Hybrid Long Term Care Insurance Policy?
I hope the information above provides you with a sense of what a basic long term care insurance policy might cost on a monthly basis.
Possibly you might know that you want to buy a long term care policy, but you might be unsure as to which type of long term care policy to buy.
Which type of long term care insurance policy is better for you? The traditional policy or the hybrid long term care policy? (or even a Life Insurance policy with an LTC Rider) How do the costs of each compare? Certainly there is not a right or wrong answer to this questions. Your decision as to which policy you like best will be a personal choice. Each type of long term care policy can provide a solution for you, they just are different approaches.
Possibly I can help you to better understand the differences to allow you to determine which avenue you like the best for your situation.
Let's take a look at a few of the key differences:
- Smaller ongoing premiums generally for life
- Premiums are not guaranteed, and could change;
- No cash value or death benefit, "use-it or lose it"
- Medicaid asset disregard benefits
Hybrid asset based policy
- Higher premiums, often funded as a one-time payment, or over a short period of time such as 5 or 10 years
- Premiums are guaranteed
- If you do not need care, your estate will generally receive most or all of your premiums back in the form of a death benefit
With both policies you can determine how much long term care insurance coverage you want to be provided.
Many hybrid policies will provide benefits for a least 6 years, or even Lifetime Unlimited LTC benefits with one hybrid underwriter.
To keep things simple let's review traditionally and hybrid premiums for a married couple age 60 seeking to buy long term care benefits of $4500 month and 6 year benefit periods each, with automatic 3% compound inflation protection.
Traditional Policy Premiums $4500 monthly LTC, 6 years each, 3% compound inflation Age 60
- National Guardian $6222.00 annually (joint premium
- Mutual of Omaha $7279.87 annually (male $2548.29, female $4731.58)
- Northwestern Mutual $10,027.80 annually (male $3542.40, female $6485.40)
Now, hybrid policies are least expensive if you pay your premium as a single pay upfront. For additional premium you could pay over 10 years. Here are sample single pay and 10 Pay premiums.
Hybrid Policy Premiums $4500 month LTC, 6 years each, 3% compound inflation, Age 60
Securian Single Pay
- Male age 60 $93,502 one-time premium, $108,000 death benefit if care is not needed
- Female age 60 $105,487 one-time premium, $108,000 death benefit if care is not needed
Nationwide 10 Pay
- Male age 60 $11,537 premium for 10 years, $115,371 death benefit if care is not needed
- Female age 60 $13,692 premium for 10 years, $136,921 death benefit if care is not needed
So which option might you like better if you are 60 years old? With the traditional long term care policy you could pay combined annual premiums for life of $6200-$7000 for maybe 20-30 years, (and get nothing back if care is not needed). You also will have to assume the risk of the rates being increased if your underwriter has poor claims experience.
Alternatively, if you have the liquid assets to reposition into the asset based policy, you could write a check for $93,000 and $105,000 respectively to cover each of you with a single pay policy. If either of you do not need care, your premium will be returned to your beneficiaries. Seems like a reasonable solution if you have the assets to reposition. So, what's the downside? Well, you will no longer generate positive yield on the your premium if you do not need care. Yes, you receive your money back with the hybrid policy (but generally not much more).
If you retain your $200,000 of assets and earn greater than a 3.5% return you could come out ahead by purchasing the traditional LTC policy.
$200,000 of premium, generating a 3.5% annual return = $7000 year to fund your ongoing annual traditional LTC insurance premium.
So, we can certainly make a case for the traditional policy - - - if we assume the rates do not change.
Obviously if the rates are increased on the traditional LTC policy, we need to earn much greater than a 3.5% internal rate of return on our asses to stay ahead.
Thus, we can simplify your risks with each policy option as follows:
- Traditional LTC policy: rate increase risk
- Hybrid LTC policy: opportunity cost risk
Which risk are you more comfortable with might determine which option you prefer.
We have clients that choose both options today, although I will not argue the fact that the asset-based polices have become more "popular."
I am hopeful that the above information may help you to better understand what your options are to help you to make your best decision.
What Is The Traditional Long Term Care Insurance Underwriting Process Like?
Okay, you think you might want to apply for coverage. You might have questions regarding what the process is like to receive health underwriting approval for your long term care policy
Is there an exam required to be approved? How long will the process take? If I get declined by one company can I get approved with another company?
These are all valid questions. Let's review your process to getting underwriting approval for a traditional LTC policy.
With traditional long term care insurance, the underwriting certainly can be more stringent when compared to being issued a hybrid policy.
The traditional long term care underwriter will not require an exam. (An exam is generally never required with the hybrid underwriter either)
The biggest difference in underwriting is the traditional LTC underwriter will request and review medical records on every applicant.
The hybrid policy underwriter will often only perform a telephone health interview, and issue coverage after the telephone interview is complete. With hybrid underwriters, the ordering of medical records is discretionary. With traditional LTC underwriters, the ordering of medical records is mandatory.
In additional to medical records, an electronic prescription drug report, and a telephone health interview will be ordered.
The process will usually take 4-6 weeks to complete.
Due to the ordering of medical records, it is inevitably somewhat harder to get underwriting approval with the traditional LTC application because there is one more hurdle that always has to be jumped over successfully.
Once underwriting is completed you will learn if you qualify for Preferred health discounts.
You will have 30 days to pay your premium and to accept coverage once your offer is extended.
Finding Your Best Long Term Care Insurance Policy
I understand that long term care insurance can be a complex and confusing issue for you. Let me help to simplify the issues and options for you so that you can determine your best option and design your proper plan.
As an independent agent I work with all of the leading underwriters including Mutual of Omaha, National Guardian, Thrivent, OneAmerica, Lincoln, Securian, Nationwide, Brighthouse, Global Atlantic, Pacific Life and more. To discuss your needs and to receive your free no-obligation illustrations of the leading providers, please call me direct toll-free at (800) 891-5824.
Or you may submit your online quotes request form.
I look forward to working together with you.