A new type of product that pairs life insurance with long-term care coverage may be a good option for those who can’t manage the cost of traditional LTC coverage.
Insurance companies have become very creative when it comes to designing new products that bundle different types of coverage in a way that makes sense to consumers and to the insurance company’s bottom line. This new hybrid is an example of that kind of thinking. The question is, will this particular hybrid give you the long-term coverage you need in the event of a devastating illness or injury?
Kiplinger’s article, “Hybrid Insurance Policies Gaining Steam," notes that the most popular hybrids attach a long-term-care rider to a life insurance policy. People can usually pay a single up-front premium, and if they never need long-term care, their heirs will receive the death benefit of that policy.
By paying a single premium or series of set premiums, you don’t have the risk of premium increases in the future. That’s an issue that has been a negative feature of traditional long-term-care policies. Many people have also balked at the “use it or lose it” concept that goes with traditional long-term-care policies. A hybrid policy’s potential death benefit eliminates that concern. However, its important to remember that by giving up a large chunk of change for a hybrid policy, you’re giving up the potential of earning a market rate of return on that money.
When considering any long-term care policy, think about how you might invest the money that’s not spent on premiums. Can you finance your own long-term care if you need caregivers, or an assisted living facility? Also consider whether you qualify for Med-Cal if skilled nursing care is required. The rules are not as stringent as one may think, especially for married couples.
Do your homework when it comes time to purchasing these kinds of insurance policies. Be sure to compare the long-term-care coverage options, policy premiums, death benefits and cash values. Look to see what the lifetime maximum is, and whether the policy pays for a variety of care needs – in home care, assisted living, residential care facility, and skilled nursing care. If you are not sure about whether or not the policy will protect you and your family, reviewing the actual policy with an estate planning attorney before you sign anything can better help you make an informed decision.
Reference: Kiplinger’s (January 2017) “Hybrid Insurance Policies Gaining Steam"