Should I Consider Combining Long-Term Care and Life Insurance?

We have an aging population. It’s not uncommon for people to spend more than a third of their lives in retirement. You work hard and save money so you can enjoy those years and pass something down to your children.

But what happens if you get sick for a long period of time?

Most health insurance policies and Medicare don’t cover the cost of long-term care services such as nursing homes and in-home care. Depending on your condition and the state and facility in which you live, the annual cost of long-term care can easily run into six figures.

Generally, financial advisors say that if you have at least $5 million saved, you can probably generate enough income from your wealth to cover the cost of long-term care without eating into the principal. Otherwise, some form of long-term care insurance is usually recommended for people age 60 and older who qualify.

Traditional Long-Term Care Insurance

Long-term care insurance has been around for a long time. However, many insurance carriers have cut back, completely dropped, or increased the rates for long-term care policies. They’ve realized the premiums weren’t enough to cover what they were paying out to customers. If the carrier wants to drop a policy or increase your premiums every year, there’s not much you can do about it.

Because of the complexity and lack of standardization among long-term care policies, you have to be careful about which one you choose. It’s not a bad idea to have an elder law attorney review your policy for any potential issues and to make sure you understand what you’re purchasing. Questions to ask include:

  • Which expenses qualify for benefits?
  • How much benefits are you entitled to, and for how long?
  • What is the total benefit pool available?
  • Does the policy include inflation protection, which increases the benefit over time to account for higher healthcare costs?

Combining Long-Term Care Insurance with Life Insurance

A newer type of policy allows you to combine long-term care insurance with life insurance. Suppose you purchase a $500,000 life insurance policy with a long-term care rider. That means money will be available if you need long-term care. If you remain healthy and don’t need the money for long-term care, your beneficiaries receive the $500,000 benefit.

The biggest advantage of a combination plan is that you’re guaranteed a return on your investment. With long-term care, you could pay monthly or annually for 30 years but never collect because you’re one of the lucky ones who had no serious health issues and died peacefully in your sleep.

Of course, that’s the ideal scenario because everyone wants to stay healthy and independent. Financially, it’s a tough pill to swallow.

Combining long-term care insurance and life insurance is a good investment if you would otherwise keep the money in a low-yield account. Premiums will never go up, and you have the option to pay a lump sum upfront or an annual or monthly premium. Some carriers even offer a money back guarantee. If you decide after a certain period of time, such as five years, that you don’t want the policy, you can get your money back.

The only real drawback of combining long-term care and life insurance policies is cost. Again, all carriers and policies are different, but you may have to pay significantly more to gain the flexibility to either cover your long-term care costs or have your beneficiaries collect the death benefit. But unlike traditional long-term care policies, a combined policy means either you or your beneficiaries are guaranteed to collect.

If you’re age 60 or older or approaching age 60, it’s a good idea to review your investments and determine if you need a long-term care insurance policy. Make sure you’re aware of all options, including policies that combine long-term care and life insurance.

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