If you have a long term care insurance policy, you know the premiums are expensive and you want assurance that the policy will pay in the terms you envision should you ever need it. Unfortunately, one simple oversight can jeopardize the integrity of your policy: missing a premium payment. Just one missed payment runs the risk of your long term care policy lapsing. Here we discuss easy to establish but essential back up measures to put in place now to protect your policy.
The Importance of Long Term Care Insurance
Long term care insurance helps to protect your ability to pay for professional assistance if you’re no longer able to physically take care of yourself, ideally without depleting your assets. This type of insurance policy can provide meaningful support to help safeguard a healthy spouse, as well as preserve a financial legacy for your loved ones.
The Costs of Long Term Care Insurance
The costs of medical care have been rising quickly, with long term care price increases far exceeding traditional inflation rates. Round-the-clock care currently ranges between $75,000 and $200,000 per year, depending upon where you live and the level of assistance.
Long term care insurance premiums have also increased significantly over the past two decades as a result of higher care costs, low interest rates and insurance industry miscalculations regarding policy lapse rates.
Many policy holders have faced premium increases of 20% to 150%. While these increases are certainly not welcome, it often makes sense to pay the higher premiums to retain your coverage benefits, versus accepting lower benefits in return for a lower premium or letting your policy lapse.
Potential Termination of Long Term Care Benefits
As with all insurance policies, premiums must be paid in a timely fashion to avoid a lapse in coverage or termination of benefits. Grace periods are typically offered post the formal premium due date, but this period can be as short as 30 days, depending upon the insurance company and the state you live in. Given the significant risk if your policy should lapse, we encourage policy holders to consider the following:
- Are you diligent about paying your bills within one to two weeks?
- Do you ever travel for more than two weeks, perhaps missing a premium notice?
- If you’re experiencing memory decline, are your bills starting to pile up? If yes, can you risk forgetting to pay your insurance premium payment?
- Are your premiums set up on autopay from your bank account?
- If yes, do you have ample reserves to ensure continued payments should you forget?
- If no, should you consider automating payments for assurance?
- If you were unable to manage your financial affairs, do you have confidence that your Power of Attorney Agent would have your financial affairs in order within 20 to 30 days, with full access to all of your records, to act on your behalf?
Long Term Care Premium Back-Up Plans
If you have any questions about your ability to maintain your incredibly valuable long term care insurance coverage after reviewing the above questions (or others that come to mind), then it’s time to put a contingency plan in place. Two primary options exist:
- Name an Alternate Contact Person on Your Long Term Care Insurance Policy
We strongly recommend that ALL long term care insurance policy holders name an alternate contact person for the insurance company to contact in the event of a lapse of premium payments. Ideally, this is the same person you’ve named as your Power of Attorney or Trustee, as that is the party who can actually make payments on your behalf should he or she need to do so. - Set Up Auto Pay
Another best-practice stopgap is to set up auto pay from an account that consistently maintains an account balance adequate to support your long term care premiums and other recurring expenses. This ensures that even if a premium notice is lost in the mail or you fail to pay it, the premium continues to be paid without risking policy termination.
SageVest Wealth Management is an independent, fee-only financial advisory firm. We do not sell insurance, but we strongly advocate long term care insurance, and other types of insurance to protect financial security. Please feel free to contact us to discuss how to go about protecting your long term care policy, or any other financial considerations.
