Hybrid Policies: Long-Term Care and Life Insurance Combined

With an aging population, paying for long-term care continues to be a concern. But there are several reasons people hesitate to purchase long-term care insurance (LCI). Many who have the means often invest instead, and plan on using profits to cover long-term care should it become necessary. New hybrid products, however, combine long-term care insurance with annuities or life insurance, eliminating some of the barriers to LCI.

The biggest issues with long-term care insurance are that premiums can increase dramatically over time and, if you outlive your LCI policy you forfeit the money you’ve paid into it over the years.

What Is a Combination Long-term care and Life Insurance Policy?

Life insurance with long term care allows holders to enjoy the benefits of long-term care insurance without the risk of losing their investment if they outlive the policy. Since hybrids have an up-front investment, usually a minimum of about $50,000, according to Bankrate.com, there are no monthly premium costs. If they die without using long-term care, the benefits are passed onto family members or beneficiaries. If long-term care was needed, the final benefit will be the annuity benefit amount less money spent on LCI.

Is Life Insurance with Long Term Care Right for You?

There are several factors to keep in mind when considering the purchase of a hybrid long-term care and life insurance policy.

Pros

• Physical exams are not required, although you may be asked if you have had a serious illness. Less serious illnesses don’t affect qualifications or costs.
• If you qualify for long-term care at some point (you are unable to manage two of six activities of daily living: eating, bathing, dressing, toileting, maintaining continence, or you have a cognitive impairment), you can use your insurance benefits for in-home care or at a care facility.
• The money you take out for long-term care is tax-free.
• Once you make the initial up-front payment, an annuity portion as well as long-term care are fully funded.

Cons

• The money you invest won’t be available without paying substantial surrender fees until the annuity matures, usually in five or ten years.
• Returns on the annuity are substantially lower than with traditional annuities.
• If interest rates decline, the policy’s interest rates may not keep up.

If you’re looking at purchasing a hybrid long-term care and insurance policy, some experts say it’s best to look at it as an estate-planning tool, with the long-term care coverage an added benefit.

To determine if a long-term care policy is a good fit for you, learn more about this type of insurance and talk to an insurance professional before you decide.