By Scott Hamilton, CFP®
As older people chart out their future financial goals, two major priorities usually come to the surface. One is shielding their loved ones from loss of income. The other is preparing for the potential need for long-term care (LTC). Two of the primary financial instruments that address these goals are level term life insurance and traditional LTC policies.
After working with our clients to find the more favorable option, the benefits of level term life insurance have reinforced it as the preferred choice. Here’s a breakdown explaining why.
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Why Level Term Life Insurance Remains a Top Choice
Level term life insurance provides a fixed death benefit that equals the premium charge for a given period, usually 10, 20, or 30 years. The objective is to offer affordable and predictable health coverage in the policyholder’s peak earning years. As a pillar of financial coverage since the mid-20th century, level term life insurance is favored by many clients for a few reasons.
Cost Efficiency and Simplicity
Level term life insurance provides significant coverage for a reasonable, fixed premium across a defined time. There’s no corresponding investment element or savings account. It’s a solid vehicle for straight-up income replacement.
Financial Planning Advantages
Many use level term life insurance as a means for managing finances and debt. It can help pay back mortgage debt, education expenses, or separate income for dependents during their working years.
Predictability
Premiums in level term life insurance remain the same during the length of the term. All the benefits of the insurance are guaranteed to stay in place for the duration.
Convertability
Many level term life insurance policies can be converted to permanent insurance. There’s usually no need for additional underwriting for the policy to change over.
Why Traditional Long-Term Care Insurance Is Declining
LTC insurance arose in the late 20th century to help policyholders afford rising healthcare costs that Medicare or traditional insurance couldn’t cover. However, a few downsides have led to LTC’s gradual decline.
Rising Premiums
LTC policyholders have reported unexpected premium hikes. These have threatened the policies’ long-term affordability.
Unused Benefits Are Lost
There’s a “use-it-or-lose-it” nature behind LTC benefits. If policyholders don’t need healthcare, the benefits disappear, and the value of the policy is questioned.
Limited Flexibility
Traditional LTC insurance offers few options for customization of benefits. Also, it often doesn’t align with contemporary hybrid options.
Carrier Instability
Fewer insurers offer LTC coverage than in the recent past. This casts doubt on whether it can stay a reliable source of support in the future.
Modern Alternatives to Traditional LTC
Today, individuals seeking alternative strategies to LTC insurance have a few options to consider.
Hybrid Policies
In some cases, policyholders can consolidate life insurance and LTC riders that pair permanent life insurance or annuities with LTC benefits. Should those benefits not be necessary, heirs still receive a payout on the death benefit.
Purpose-Built Self-Insurance
Clients with high net worth might consider marshaling their own dedicated LTC savings or insurance plans. They offer great flexibility and asset preservation.
Health Savings Accounts (HSAs)
Eligible HSA holders can use their funds to pay for qualified LTC expenses. In turn, they get tax breaks on contributions, investment growth, and withdrawals for approved expenses or care.
Learn More About Level Term Life Insurance
As level term life insurance emerges as a more popular vehicle for financial stability, Hamilton Financial Planning, LLC is dedicated to helping clients understand its value and benefits. You can contact us to schedule an introductory session to discuss your options for life and health coverage.
Schedule a complimentary get-acquainted meeting online or reach out to us at 512-261-0808 or scott@hamiltonfinancialplanning.com. I look forward to speaking with you!
About Scott
Scott Hamilton is founder and chief financial officer at Hamilton Financial Planning, a wealth management firm that specializes in providing comprehensive financial planning for retirees. With over 20 years of experience in the financial industry, and having completed over 250 financial plans for retirees across all industries, but mostly the oil and gas industry, Scott is passionate about providing his clients with the tools and insight they need to achieve their financial goals. He has a Bachelor of Business Administration in finance from Texas State University and an MBA in international finance from Pepperdine University. Scott has also been happily married to his wife, Gayle, for over 25 years. To learn more about Scott, connect with him on LinkedIn.
