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How to Cover Long-Term Care With Life Insurance

Did you know that 70% of people turning 65 today will need long-term care (LTC) at some point in their life? Long-term care isn’t just for the elderly, though. In 2000, over two-thirds of the people requiring some form of long-term care were under 65. If you’re a busy business owner, doctor, dentist or other professional who doesn’t have time to take care of yourself by eating right and exercising, you increase your chances of needing long-term care as well.

Risks of Long-Term Care Insurance

Long-term care can be very costly, but luckily you can insure against it. The problem with long-term care insurance, though, is that it can be expensive. In addition to being expensive, there is no guarantee that you will ever even use it. Many people shy away from pouring tens of thousands of dollars into something that they may never benefit from. (For more from this author, see: Protecting Your Income With Disability Insurance.)

Linking Long-Term Care and Life Insurance Policies

Is there any way to guarantee that you’ll get something for all of the money that you pay towards a long-term care policy? The answer is a combination long-term care and life insurance policy. Also called linked or asset-based policies, these are newer to the market and combine long-term care with a permanent life insurance policy, such as whole or universal life. They cover long-term care costs and if the maximum hasn’t been reached, they pay a death benefit as well.

How Much Do They Cost?

There are several types of policies, all requiring large upfront payments. With some, a single lump-sum premium payment is paid while others are broken down into several annual payments, usually over less than 10 years. The American Association of Long-Term Care Insurance reports that the average single-premium combination policy costs $75,000. Prices vary depending on coverage and the health and age of the person covered.

What Are the Benefits?

Combination policies provide funds for long-term care equal to several times the premium payment. And the death benefit is reduced in accordance with how much of the long-term care benefit is used. Even if you use all of the long-term care benefit, some policies still guarantee a small percentage of the death benefit. That way, no matter how much care you need, your beneficiary will still receive something at your death.

How Do You Qualify?

Not all plans have the same requirements. For some, you must provide medical records and take a medical exam. For others, you only need to answer some health questions over the phone. Healthy people usually get better rates with the plans that require medical records and a health exam. (For more, see: A New Approach To Long-Term Care Insurance.)

Advantages of Combination Policies

As already mentioned, knowing that you will at least get something in exchange for your premium is a major advantage of combination policies. In addition, they are a good investment if the premium payment would otherwise have been sitting in a savings account or CD with a low interest rate.

Some traditional long-term care policies have greatly increased rates recently due to care costs exceeding insurance company projections. Having a single premium payment guarantees that you will not have to deal with rate increases. Even some of the policies that have several premium payments will guarantee that the payments will stay the same.

Certain combination policies even include money-back guarantees. After a specific time period, they will refund your premium if you decide you do not want the coverage. If you don’t wait long enough you will probably only get a percentage of your premium refunded to you.

Disadvantages of Combination Policies

While combination policies are great in many ways, they are not for everyone. If you only need life insurance, it is more cost-effective to just purchase a regular term or permanent policy. In the same way, if you don’t need life insurance, it’s usually better to just buy a stand-alone long-term care insurance policy. Or, if you don’t need permanent life insurance, buying term is often much cheaper. There is no reason to pay more for something that you don’t need.

Another disadvantage of combination policies is the upfront cost. If you don’t have tens of thousands of dollars readily available, a combination policy may be out of reach for you.

How to Choose a Combination Policy

Combination insurance policies are complex products with varying costs and benefits. When making important insurance decisions it is helpful to work with an experienced financial advisor. An advisor can not only help you compare different types of policies and insurance providers, they can also analyze your specific situation to see if a combination policy is the best option for you. (For more from this author, see: 4 Options for Your Old 401(k) When You Change Jobs.)