Today, deciding whether to buy long-term-care insurance feels a little like trying to hit a moving target. Change is the only constant. But that’s not necessarily a bad thing.

“There are more types of LTC insurance solutions than ever before,” says Marc Glickman, an actuary and CEO of BuddyIns, a Calabasas, Calif.-based community of long-term-care insurance specialists.

The industry has certainly gone through growing pains. About 50 years ago, when long-term-care policies first became widely available, there were as many as 100 carriers; today there are only about a dozen. One by one, they exited the business as customers lived longer and healthcare expenses grew.

But those that remain may be better and stronger than ever.

Pricing Improvements
“The policies today are priced realistically,” says Brian Gordon, president of Murray A. Gordon & Associates/MAGA Ltd., a long-term-care specialist firm in Bannockburn, Ill. “The carriers have learned from their past missteps of underpriced, benefit-rich plans.”

In fact, he says, rates may be coming down. That’s partly because of rising interest rates. Insurance companies typically park their assets in fixed-income instruments. When rates were low, the companies had to raise premiums to make up the difference. Not any longer.

“With the higher interest rate environment,” says Gordon, “we are just starting to see some carriers lower their premiums slightly on new business.”

Tougher Underwriting Requirements
Yet Gordon concedes that the coronavirus pandemic has affected the industry, too. “I’ve found the underwriting to be a bit tougher,” he says, referring to the standards used to determine who can qualify for coverage.

Besides coming up with a longer list of policy exclusions for people with pre-existing conditions, some carriers have temporarily restricted coverage for anyone who has lived in or recently traveled to high-Covid areas.

On the other hand, the pandemic has contributed to higher demand as awareness of the devastating effects of protracted health problems has grown.

Another recent demand driver: stock market volatility. “Those who felt confident that they could pay for LTC out of pocket are no longer as confident and therefore are looking at LTC insurance,” says F. Michael Zovistoski, a managing director at UHY Advisors NY in Albany, N.Y.

State Mandates
Politics has played into rising demand as well.

First, in 2019, the state of Washington passed the Long-Term Services and Supports Trust Act (also called the Long Term Care Trust Act). The first of its kind in the nation, the payroll-tax-funded program was supposed to go into effect in January 2022, letting anyone who owned private long-term-care coverage before November 1, 2021, opt out of the tax.

The program has been delayed, however, while legislators iron out issues such as how to handle self-employed people or those who work in the state but live and/or retire elsewhere. Consequently, payroll deductions won’t actually start till July 2023, and benefits won’t become available till July 2026.

Still, in the six months before the November 2021 deadline, more than 450,000 people in the Evergreen State reportedly purchased coverage.

California, New York and a few other states are weighing similar programs.

Federal Legislation
More recently, in the nation’s capital, senators have been debating the Long-Term Care Affordability Act. If passed, it will permit long-term-care insurance premiums to be paid directly from 401(k), IRA and other retirement accounts without a penalty for early distributions.

“This would be game-changing,” says Howard Sharfman, senior managing director at NFP Insurance Solutions in Chicago. It would “allow clients to pay for LTC [coverage] with before-tax dollars and would significantly change the customer’s mindset in a positive way,” he says.

Mindset is important for persuading clients to purchase coverage. But helping them understand the various options is another challenge.

Broadly speaking, there are two types of policy: stand-alone long-term-care plans and hybrid or linked plans that offer long-term-care benefits as a rider to a life insurance policy or an annuity. Stand-alone plans tend to be less expensive but harder to qualify for. Most are pay-as-you-go, and rates can increase, though some plans allow you to lock in rates by paying a lump sum in advance or in preset installments. Hybrid policies, on the other hand, almost always require a big up-front payment.

“For males, hybrid policies are typically about twice the cost [of stand-alone policies], and for females they’re about 25% more,” says Ari Fischman, an advisor at Telemus Capital in Southfield, Mich.

Deciding Between Options
But some clients are “looking not just at cost/benefit but also at factors such as product flexibility, the availability of additional features such as a death benefit, or guarantees on premium costs,” says Ken Latus, vice president of risk products at Northwestern Mutual. “Managing LTC risk should be considered in the context of broader planning needs.”

There are also different deductibles, benefit limits, caps on the length of time you can receive coverage, and “exclusion periods,” which refer to how long you have to wait before coverage goes into effect. Adjusting any of these variables can alter premiums.

Benefits can vary, too. Some hybrid policies only cover “chronic illness,” which is more limited than full long-term-care protection. Coverage triggers could differ. For instance, while traditional policies go into effect once you need help with at least two “activities of daily living”—eating, dressing, etc.—some chronic illness plans may require physician certification.

Why Hybrid Plans Remain Popular
For many people, though, what’s most appealing about hybrid plans is that even if you never use the long-term-care benefit, you still have a tax-free death benefit for your heirs.

“The biggest resistance to purchasing LTC insurance is paying the premium and ‘not getting anything in return,’” says Len Hayduchok, a certified retirement planner at Dedicated Financial Services in Rehoboth Beach, Del. “The death benefit feature is attractive for consumers who do not properly understand the concept of risk and the purpose of insurance.”

To put it another way, hybrid plans “don’t have a ‘use it or lose it’ feature,” says Tom Beauregard, CEO of HCG Secure in Goshen, Conn., which sells long-term-care insurance. “These policies make sense for families that want the comfort of having LTC benefits and a guarantee that their beneficiaries will receive a benefit if they don’t exhaust it.”

Understanding The Economics
To be sure, many clients don’t want to think about long-term care at all. Yet it’s estimated that 70% of people who turn 65 will need these services at some point, and the average price tag is some $90,000 a year.

“LTC costs cause many families financial devastation,” says Sharfman at NFP Insurance Solutions. “This is very important coverage that should be considered sooner rather than later.”

Health insurance and Medicare don’t cover long-term-care expenses; only Medicaid does. But to qualify for Medicaid, you have to be impoverished. Generally, that means having no more than $2,000 in liquid assets.

Many states, however, offer insurance partnership programs that exempt long-term-care benefits from Medicaid eligibility calculations. So if you receive $100,000 in LTC benefits, say, it won’t count against your Medicaid eligibility.

“That’s an extra source of value,” says Glickman at BuddyIns.

Ultimately, the choice of long-term-care coverage depends on someone’s personal circumstances and priorities. “As with lots of financial decisions, it is as much an emotional decision as an analytical one,” says John E. Roessler, a senior financial planner at Chicago-based Kovitz.