Long-term care insurance can be an important component of planning for future care needs. But paying ongoing premiums for a policy can seem burdensome. Many people wonder – can you pay for long-term care insurance upfront in a lump sum rather than paying premiums for life?
The answer is yes, some long-term care insurance policies do allow for a one-time, lump-sum payment. However, not all policies have this option, so it’s important to understand the pros and cons when considering whether to pay in full upfront.
What is Long-Term Care Insurance?
First, let’s review the basics of long-term care insurance.
Long-term care insurance is private insurance that helps pay for extended custodial, personal, and medical care for people unable to care for themselves due to illness, disability, or old age. It helps cover services like:
- Assistance with activities of daily living (bathing, dressing, eating, etc.)
- Home health aides
- Adult daycare
- Nursing home care
- Assisted living facilities
Long-term care insurance provides a pool of money you can use to pay for care. Policies reimburse a set dollar amount per day or month for qualified long-term care expenses.
Who Offers Long-Term Care Insurance?
There are several options for purchasing long-term care insurance:
Traditional long-term care insurers – Specialized insurance companies like Genworth and Mutual of Omaha offer long-term care insurance policies.
Life insurers – Some life insurance companies like Northwestern Mutual offer long-term care as a rider on life policies.
Hybrid policies – Combines life insurance and long-term care. Issued by insurers like National Guardian Life.
Workplace plans – Some employers offer long-term care insurance as a voluntary workplace benefit.
Each company will have their own regulations regarding lump-sum payments.
What are the Premium Payment Options?
Long-term care insurance premiums are paid in one of two ways:
This involves paying a monthly, quarterly, or annual premium for the life of the policy. Premiums are typically locked in at the initial policy purchase date. However, the insurer may have the right to increase rates going forward for existing policyholders.
Most traditional long-term care insurance policies use periodic payments. Disadvantages include:
- Ongoing premium expense
- Potential for rate increases
- Risk of lapse if payments stop
Single Lump-Sum Payment
Some insurers allow you to pay the full policy premium in a single, lump-sum payment. This completely pre-funds the policy upfront.
Advantages of a lump-sum payment include:
- Avoid future premium payments
- Lock in a set price – no rate increases
- Eliminate risk of lapse due to non-payment
- Easier to budget as a one-time expense
A lump-sum also guarantees the policy will be paid in full. The insurer cannot cancel the policy as long as you don’t make policy changes later.
What Policies Allow Lump-Sum Payments?
Not all long-term insurers offer a lump-sum option, but many do. Here are some details on what types of policies allow single payments:
Traditional long-term care – About half of insurers like Bankers Life and Transamerica allow lump-sum payments on traditional long-term care insurance. Others only offer periodic payments.
Life/LTC hybrids – Most life insurance/LTC combination products permit a single premium payment that covers both the life policy and LTC rider. For example, policies from Lincoln Financial, Pacific Life, and Nationwide allow this.
Workplace plans – Voluntary long-term care insurance through an employer typically involves regular premium deductions from your paycheck. Lump-sum payments are rare for group plans.
Self-insurance – You can self-fund for long-term care by earmarking savings you invest in an accessible account. This essentially self-insures against the risk.
If you’re interested in paying your premium upfront, be sure to inquire about lump-sum options when shopping for long-term care insurance. Some good questions to ask:
- Do you allow a single lump-sum payment for this policy?
- What is the total one-time premium amount?
- Are there any fees or costs to pay in full upfront?
- Is the payment amount guaranteed not to change in the future?
Get details in writing before committing to pay in full.
What are the Pros of Paying a Lump Sum?
Paying your entire long-term care insurance premium upfront in a lump sum has several advantages:
Locks in a set price – By prepaying the full premium in a single lump sum, you lock in the policy price and don’t have to worry about the insurer raising rates later. This eliminates the risk of big price increases down the road.
Avoids ongoing premiums – A lump-sum payment means you don’t have to budget for decades of policy premiums. This reduces the long-term expense.
Easier to budget – You can fit the single payment into your overall financial plan. This one-time expense is usually easier to fund than ongoing premiums for life.
Guarantees the policy – When you pay in full, the insurer cannot cancel your policy as long as you don’t alter the terms later. This guarantees the policy will be there when you need it.
Returns net-zero – Since you prepay the full amount, your “net” long-term care premium cost over your lifetime is essentially zero.
Asset protection – Paying upfront lets you lock in coverage and remove assets from your estate. This protects assets you want to leave to heirs.
For these reasons, a lump-sum payment often makes sense for financially disciplined individuals who can afford to prepay.
What are the Cons of a Lump-Sum Payment?
There are also some potential disadvantages to consider with an upfront long-term care insurance payment:
Large one-time cost – Prepaying your entire premium for life is a big single expense. Make sure you can comfortably afford to pay the full amount in one lump sum.
Less liquidity – A lump-sum premium may tie up money you need for other goals before needing long-term care. It reduces liquidity compared to paying annually.
No flexibility – With a single payment, you lose the flexibility to change your mind and stop paying premiums later. You’re committed once you prepay.
Loss if unused – If you never end up needing long-term care, the lump-sum premium spent is lost. Some policies offer partial refunds, but there is still loss.
Policy changes – If you alter the policy later, you may need to pay additional premiums beyond the original lump sum.
Inflation risk – Most lump-sum policies don’t include automatic inflation protection. This puts you at risk of future benefit erosion.
For these reasons, it’s not ideal for everyone. Make sure a lump-sum makes sense for your situation.
Who is a Lump-Sum Payment Right For?
So when does it make sense to pay for your long-term care insurance in a single upfront premium?
Here are some factors to consider:
Age – Older individuals have a higher chance of using benefits and get more “bang for the buck” by prepaying closer to when they may need care.
Assets – Prepaying premiums only makes sense if you have sufficient assets. Don’t tie up funds needed for other goals.
Income – Adequate income to cover the lump-sum expense without impacting your lifestyle is ideal. Paying over time may work better if cash flow is tight.
Health – If health issues make you uninsurable later, paying upfront locks in coverage you might not be able to get in the future.
Discipline – Lump-sum only works if you are financially disciplined enough to pay fully and not touch the funds.
Family – Singles who need to fund their own future care may benefit most from an upfront payment.
Peace of mind – If guaranteed coverage gives you peace of mind, a lump-sum eliminates worry about paying premiums.
How Much Does a Lump-Sum Long-Term Care Premium Cost?
The amount you’ll pay in a lump-sum depends on several factors:
- Your age at purchase
- Benefit amount and length
- Types of facilities and care covered
- Optional policy features and riders
- Your health and insurability
In general, expect to pay a larger premium the older you are when buying the policy. Someone age 60 may pay around $20,000 to $30,000 for a lump-sum policy. If you wait until 70 or 80, the one-time premium is likely $50,000 to $100,000+.
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