Today in America, people are living in good health for as much as a decade longer than their parents. A 65 year old male today has a 50 percent chance of living beyond age 85 and a 65 year old couple has a 50 percent chance that one member will live beyond the age of 92!
There is good news in this, but also reason for concern, especially as it affects life and long term care insurance.
Most of us reasonably assume that our policies will be in effect for as long as we live and will pay our heirs the face amount upon our death.
However, before the 1980’s, life insurance companies had no need to base their policies on the contingency that the insured would live past 100 years.
Indeed, most policies terminated at age 95 or 100 with the insured simply receiving the cash value (often significantly less than the death benefit) if they ‘out-lived’ the policy.
Moreover, most of us do not realize that this could be the case until it is too late to make a change.
What is more common today is that older policies were written based on an interest rate assumption being earned throughout the life of the policy.
With the historically low interest rates today, many policies are falling short of their projected investment earnings, meaning that the policy you thought would last to age 100 may only last to age 92.
Closing the Gap
There are ways to remedy this dilemma.
First, it is crucial to periodically review your policy.
Just because you are not being advised by the life insurance company of a possible short-fall, and even though you may be paying a level premium, you still need to be diligent.
Your company (or another) may be able to change your policy to their current series which may result in a lower premium. Generally, new policies are less expensive due to decreased mortality experience.
This approach may allow you to:
1) Continue to pay your current premium (or less) and extend the coverage period; or
2) Reduce the face amount of the policy and eliminate premiums.
A quick review of your policy and your unique circumstances is the first step is determining how your policy can best serve you and your beneficiaries.
Long Term Care
There are, of course, other challenges to living longer.
Uninsured health costs exceed $260,000 for a 65 year old couple including nursing home care.
(California residents pay a median rate of $93,988 per year per person (see: www.completelongtermcare.com/states/california)).
In addition to purchasing supplemental insurance to cover expenses not covered by Medicare part A and B, many seniors purchase long term care insurance as a safeguard against a financially devastating stay in a nursing home.
(Warning: This is a policy that must be purchased prior to your needing nursing home care. It can not be purchased after that determination has been made).
Before buying any long term care policy, know what ‘triggers’ must be met in order for the policy to pay, whether the premiums can be increased and what services are covered.
A Dual Approach
You may also purchase a life insurance policy with a long term care rider which provides a guaranteed payout under any circumstance.
With this type of policy, you may choose for the rider to pay all or part of your long term care costs up to the face amount of the policy. Any amount remaining will then be paid as a death benefit to your beneficiaries.
As detailed in my previous ‘On Estates’ columns, careful tax planning in conjunction with a well-structured life insurance policy will allow some or all of your estate to pass tax-free to your heirs.