Life insurance policies sold with long term care riders are generally marketed to people around age 60 as an answer to long term care concerns.
They are usually more economical to purchase with a single premium rather than monthly or annual premiums, which would total much more over a lifetime. It is common for the single premium to be a third to half of the death benefit, depending on the size of that death benefit.
For my example, let's assume a $50,000 premium put into a $100,000 life policy with a LTC rider. The cash value (not the surrender value) will be in the neighborhood of $50,000. The long term care benefit is usually 2% of the death benefit per month, in this case $2000 per month when LTC is needed.
If the client has a LTC need immediately after issue and collects a check monthly for $2000, he is often not aware that this proportionately reduces his cash value. Thus, of that $2000 check, half of it (since cash value is about half the death benefit) is simply a return of his own money. He thinks he is receiving a $2000 insurance check, but only half of that is insurance money.
Over time it gets worse. Since inflation is not a part of the great majority of these policies (or they become prohibitively expensive if it is), the LTC benefit remains $2000 per month over time, while LTC costs have been rising at 5% to 6% annually over the past 20 years.
If a LTC claim occurs 20 years later, and the life policy is still $100,000 but the cash value has now grown to $80,000, then 80% of that $2000 check is simply a return of the client's own cash value. Only $400 a month is insurance money, while the LTC costs to be paid have more than doubled.
