Alternatives to long-term care insurance for farmers

Most farmers want the peace of mind that comes from long-term care insurance. It pays the costs of taking care of you or other family members in a care facility, without having to sell the farm to pay the bills.

But people often pause at the cost of that type of insurance, says Dana Troske, a former South Dakota farm boy who helps farm families build generational transition plans (danatroske.com).

Long-term care insurance can especially be pricey if you wait until you retire to even consider it, he says. By then, advancing age and ongoing health issues, such as diabetes or cancer, may make it difficult to qualify.

"Ten years ago, maybe you could get it at a reasonable cost," says Troske. "But the underwriting requirements have gotten a lot tougher, and the premiums have increased significantly." Plus, he adds, most long-term care policies are now written for three- or five-year benefits, rather than a lifetime benefit.

The other issue with long-term care insurance is that if you end up not needing it, the premiums you paid feel wasted. "That money is just gone," says Troske.

A couple of alternatives to traditional long-term care insurance have come along in recent years that may be more appealing to farmers, he says.

Life Insurance-Based

One is a life insurance-based product. You buy a life insurance policy with a provisional rider in it for long-term care expenses while you are still living.

"Usually, the policy is written so that you can access up to 80% of the death benefit for long-term care," says Troske. "If it's a $500,000 policy, you could use $400,000. With an additional provision, you might get that to 100%."

The good news here is that if you never need it for long-term care, your heirs collect the $500,000 (tax free) at your death. Or, if you used $250,000 for long-term care, they would still get the remaining $250,000.

"A benefit is going to be paid out to someone – either for your care or to your heirs at your death," says Troske. In some cases, he says, the cost for the life insurance can be competitive to the cost of long-term care insurance.

Another advantage of the life insurance option is that premiums are locked in for the duration of the policy, which isn't necessarily true of traditional long-term care insurance. On the other hand, the traditional policy has some inflation protection built in, while life insurance does not.

Asset-Based

Another alternative is what Troske calls asset-based long-term care protection. He first used this product for a farmer who didn't like paying monthly premiums. Troske likens it to a form of self-insurance, and it is typically annuity-based.

"A farmer could put $50,000 of his or her own assets into an annuity, and it might grow at 3% or 4% a year. Over a few years, let's say it grows to $80,000. At that point, if he or she has long-term care needs, the insuring company writes into this product a provision that he or she can draw up to triple the amount of the balance for long-term care. That would be $240,000 available."

This product has some inflation protection; it is growing at the 3% or 4% per year. If you never use the money for long-term care or only part of it, the balance passes to your heirs at your death.

"This is an investment of some of your assets to provide for long-term care. The money is there and growing until you need it, and you aren't paying those monthly premiums," says Troske.

Several insurance companies offer some form of these long-term care products, he adds. "My advice is that whatever you do, always go with the highest rated financial companies, those with A+ ratings. You may not need to cash in on the policy for 20 years from now, so you want a company you know is going to be there."