𝗟𝗼𝗻𝗴-𝘁𝗲𝗿𝗺 𝗰𝗮𝗿𝗲 𝗶𝘀 𝗰𝘂𝗿𝗿𝗲𝗻𝘁𝗹𝘆 𝘁𝗵𝗲 𝗴𝗿𝗲𝗮𝘁𝗲𝘀𝘁 𝘂𝗻𝘀𝗼𝗹𝘃𝗲𝗱 𝗽𝗿𝗼𝗯𝗹𝗲𝗺 𝗶𝗻 𝘁𝗵𝗲 𝗳𝗶𝗲𝗹𝗱 𝗼𝗳 𝗴𝗼𝗮𝗹-𝗯𝗮𝘀𝗲𝗱 𝗿𝗲𝘁𝗶𝗿𝗲𝗺𝗲𝗻𝘁 𝗽𝗹𝗮𝗻𝗻𝗶𝗻𝗴. In theory, an “idiosyncratic” risk (i.e., a risk with an outcome that is unique to each individual) should be solvable with insurance. But the likelihood of requiring long-term care (LTC) in retirement is very high…so high that current long-term care insurance (LTCI) offerings have high premiums that feel more like prepayment of expenses than true insurance.
Making matters worse, total benefit payouts available from LTCI policies are typically limited to perhaps a few hundred thousand dollars, which can be an order of magnitude less than worst-case-scenario lifetime LTC costs.
In my latest article for Advisor Perspectives, I outline the concept for a product that could solve both of these problems: 𝗵𝗶𝗴𝗵 𝗱𝗼𝗹𝗹𝗮𝗿 𝗱𝗲𝗱𝘂𝗰𝘁𝗶𝗯𝗹𝗲 𝗹𝗼𝗻𝗴-𝘁𝗲𝗿𝗺 𝗰𝗮𝗿𝗲 𝗶𝗻𝘀𝘂𝗿𝗮𝗻𝗰𝗲. Instead of insuring everything up to a few hundred thousand dollars, this product could lower premium costs by imposing a lifetime 𝘥𝘦𝘥𝘶𝘤𝘵𝘪𝘣𝘭𝘦 of a few hundred thousand dollars of LTC expenses. But then a 𝘮𝘶𝘤𝘩 𝘩𝘪𝘨𝘩𝘦𝘳 𝘣𝘦𝘯𝘦𝘧𝘪𝘵 𝘭𝘪𝘮𝘪𝘵 (say, several million dollars) could provide significant protection to nest-egg and legacy dollars in the relatively rare event of a truly catastrophic long-term care need.
The article discusses how such a structure could transform long-term care insurance back into true insurance: i.e., a product where policyholders pool risk to convert devastating but uncommon outcomes into smaller, known expenses. I also discuss why a high 𝙙𝙤𝙡𝙡𝙖𝙧 deductible may be a better solution than a long elimination period.
We are actively advocating for the development of high dollar deductible LTCI with members of the insurance, actuarial, and financial advisor communities. If this concept would be of interest to you, please let us know, so I can add your voice to the chorus!
Details are in the article: https://www.advisorperspectives.com/articles/2024/10/30/dream-long-term-care-insurance
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