Thinking About Long-Term Care Planning? Capitalize On The Stock Market Decline

Few people understand the connection between financial markets and the price of long-term care insurance. But the connection is real, and gaining a better understanding can help you take advantage of timing opportunities to secure this important protection.

When it comes to long-term care insurance policies, two types are available. Traditional long-term care policies provide one function — they pay benefits for qualifying long-term care needs. And, according to the American Association for Long-Term Care Insurance (AALTCI), around 50,000 individuals buy this form of coverage annually and estimates that over 10 million Americans have purchased long-term care insurance.

More recently, linked-benefit long-term care policies have gained favor. These are life insurance or annuity contracts that offer some means of providing payouts when the policyholder requires long-term care. According to AALTCI, as many as 500,000 of these policies were purchased in 2021. However, the organization notes, this number included significant sales resulting from a one-time State of Washington initiative.

Impact Of Rising Interest Rates

Interest rates play an important role in the pricing and profitability of many different forms of insurance. This factor is particularly true when it comes to long-term care insurance where the insurer expects to generate revenue from the investment of premiums for many years before it’s time to pay benefits.

Rising interest rates have already resulted in changes announced by linked-benefit LTC insurers, both life and annuity companies. One major Life+LTC company recently announced a 5% premium reduction on its policy that combines universal life with a cash indemnity long-term care benefits package.

It is expected that other companies will follow, making it ever more important to compare offerings from leading insurance companies. Most long-term care insurance experts predict that rising interest rates will continue to benefit buyers with lower premium costs. 

Buying Long-Term Care Insurance At A Discount

While interest rates tend to move slowly, the same cannot be said for the equity markets. On Monday, August 22, 2022, the Dow Jones Industrial Average (DJIA) closed at 33,061 and the S&P closed at 4,138. Investors are well aware of the significant declines that have taken place since December 31, 2021, when the Dow closed at 36,386 and the S&P at 4,766.

Here is where the connection between equity markets and policies offering long-term care benefits can yield some real value for those who are optimistic about future stock market increases.

Some of the latest hybrid long-term care policies offer opportunities to link the growth of future policy values and benefit payout amounts to equity market performance. One of the newer policies offers multiple crediting strategies that can be especially beneficial if equity value increases exceed interest rate growth.

The basic offering for this annuity-based contract links the growth of policy values to interest rates. The company guarantees a minimum future interest rate of 1%. As a result, if a couple purchases this policy currently when both are age 75, they will pay $59,768. In 15 years, at age 90, the policy will have a guaranteed long-term care benefit of $78,758 paid out at a maximum of $2,362 per month.

What makes this particular policy attractive at a time when equity markets are low is the availability of additional options tied to future S&P market performance. Over the past 20 years (2001 to 2021), the average annualized return on the S&P 500 is 9.87%. The reference to 20 years is appropriate because the typical duration between policy purchase and need for care services generally can range from between 15 and 25 years.

Choosing a long-term care insurance policy that offers the opportunity to grow future benefits linked to equity market performance can prove beneficial. This is especially true when purchased at a time when you feel equity markets are low. Some would say you are buying long-term care insurance protection at a discount.

Comparing Policy Options And Growth Limits Is Vital

Insurance professionals familiar with these newer options strongly advise working with someone who has an in-depth understanding of each policy’s contractual provisions. Insurance company brochures are marketing pieces that typically do not provide in-depth details. Details are only contained within the actual policy contract. Contracts can run between 50 and 80 pages.

For example, it is important to understand whether the policy offers a step-up option that locks in equity market gains.  When does this occur and what happens should the index fall below the particular benchmark? How much of the actual S&P performance is credited? Often there are caps during up years.

The AALTCI can help connect interested consumers with linked-benefit long-term care insurance agents who are experts in linked-benefit long-term care policies. These expectations cannot predict future market performance, but they can help you find the best future coverage for the lowest possible current cost.